Tuesday, June 28, 2022

Labor vs Liberals: Who’s Had Better Economic Results? | AUSPOL EXPLAINED

Hello and welcome to an episode of AuspolExplained. I am your curly head host, David and I’m here to address claims that come up everysingle election – who is a better economic manager Labor or Liberal? You'll hear every electionthe same claims one) that Liberals are just better economic managers two) that Labor justspends way more than the Liberals and three) that Liberals have lower taxes. But is any ofthat true and is there no difference either way? Well let's take a moment to sit and reflect andanalyze 50 years of economic data and trends to see what actually can we infer from this. I’llbe examining three periods of Labor governments: so that's Gough Whitlam in the 70s, Bob Hawkeand Paul Keating in the 80s and 90s, and Rudd and Gillard in the 2000s to 2010s. I’ll also beexamining three periods of Liberal governments:.

Malcolm Fraser in the 70s and 80s, John Howardin the 90s and 2000s, and then Tony Abbott, Malcolm Turnbull, and Scott Morrison in the 2010sto present. So that's a similar amount of time with a few more extra years in the Liberal campbut five Prime Ministers each. Also before I begin I must reiterate for those who aren't returnedsubscribers this is a non-partisan educational project. There's no party affiliation of anykind, there won't be any value judgments on any policies or reforms, I will merely be providingyou with facts and data for you to examine and learn from. At no point will I tell you whoto vote for, or say that you're wrong to vote for one of these parties instead of the other,and at no point will I criticize either party. I will be presenting to you statistics. Also, asis my custom, I provide copies of scripts with.

Citations included so you know that I’m providingevidence for this. First off: some basics. A really important part of this analysis involvesGDP or gross domestic product. Eww! It's gross! Basically GDP is the total monetary value of allfinished goods and services made within a country, so it's a key indicator of how the economy isgoing. GDP growth means economy is growing. Good? Okay. It's a standard measure to use as aframework for comparing things like taxes, spending, and debt, etc, so you'll hear alot of it to give context to things like “tax to GDP ratio” – like right now! Who has lowertaxes: Labor or Liberal? So a common claim I hear is that Liberals just have lower taxes than Labor.It's also like the quickest and simplest of this entire episode to prove whether or not this istrue. So there are a lot of different taxes like.

Income, corporate, capital gains, GST, exciseson tobacco and alcohol, luxury cars, etc. Both parties Labor and Liberal have introduced and cutdifferent taxes so let's get that sweet GDP ratio and graph it. The total tax burden to GDP ratioover the past 50 years goes up and down up and down, naturally. To get a proper comparisonwe'll exclude the transition years so there's no crossover between a year that was partiallyLiberal and Labor as a financial year – therefore we find that the average taxed GDP ratio forWhitlam's Labor was 18.9 percent, whereas just after him Malcolm Fraser's Liberal party climbsto 20.7 percent, it then climbs again under Labor's Bob Hawke of 21.8 percent but then goesdown to a low of 20 percent under Paul Keating, which is still Labor, it then goes up again toits highest point for the entire 50-year period.

With the Liberal Prime Minister John Howardwho averaged 23.4 percent over 11 years. There's a noticeable drop of to an averageof 20.8 percent under Rudd and Gillard before returning to an upwards climb under AbbottTurnbull and Morrison of 22.3 percent. So while Labor's Bob Hawke and Rudd and Gillardhad a higher tax to GDP ratio than the Liberal Prime Minister Malcolm Fraser, the actualbiggest tax burden to GDP has been under Morrison, Abbott, Turnbull, and John Howard. Therefore thetwo highest taxing periods in the past 50 years have been Liberal governments. Labor’s Rudd andGillard actually had the lowest tax to GDP ratio since the 70s. So statistically speaking taxes arehigher under Liberal governments – not always but statistically they are. So the claim “taxes arealways lower under Liberals” is not correct. There.

Was a hoax, so completely unfounded, during the2019 election that Labor was going to introduce a death tax which was completely untrue and partof a scare campaign. It's important for voters to always be mindful to double check the validityof claims. There's no law regulating truth and political advertisements and social media oftenjust spreads false claims. Actually both Labor and Liberal policy platforms for the 2019 electioninvolved cuts to income taxes and both parties support low taxes – which shows as we are actuallyquite a low tax country compared to others. Even though taxes are comparatively highfor Australian governments under the Abbott, Turnbull, and Morrison government, in 2019Australia ranked 30th out of 38 countries in the OECD for tax to GDP so we're actuallyreally low. The OECD is the Organization.

For Economic Co-operation and Development –an intergovernmental economic organization that is mostly comprised of high-income economies.Economists will often compare where we are in relation to other countries in the OECD. So evenif either party has to raise taxes in the future to increase revenue as a response to debt- as both parties have done in the past -then Australia would likely still be a lowtaxing country by international standards. Taxes in a vacuum don't mean much so let'sexamine the other side of the same coin: spending and debt. Labor has a reputationas higher spenders than the Liberals, but where did this come from? Well, turns out unlikethe taxes thing this one is founded in something actually real and the answer is Gough Whitlam.*shuffling book sounds*.

Oh come on.Whitlam increased government spending in 1972 massively – we're talking by 40 percent.He made university education free and introduced universal healthcare with Medibank before it wasrepealed by Malcolm Fraser. But Whitlam also had a budget surplus for every budget he delivered.Government spending before Whitlam was around 17 to 18 percent as a ratio to GDPbut post-Whitlam once he increased it, it didn't go back down to that. In fact theaverage still remains around the 24% to 25% mark. A budget by the way is an assessment of thegovernment's revenue, economic position, and then also outlining the costs and programs with futurespending. So a budget surplus means that they got more money than they spent, and a deficit meansthey've got less. The aim isn't to always get.

A surplus every single time – but to make sureoverall the deficits and surpluses are balanced. Bob Hawke also increased government spending byreintroducing public health care, now known as Medicare, he also drastically increased the amountof people who could access secondary and higher education due to an increase in education funding.Hawke however did reintroduce student fees as a way to help pay for that higher education spendingand created HECS – which is a form of structural revenue. Something that is structural is a thingthat continues on more or less through multiple financial years. A one-off payment like a stimuluspayment like Rudd did during the GFC or Morrison did during the first year of the COVID-19 pandemicis non-structural. Health and education funding are structural. Funding for it can be cut but theservices still exist and so while you may save.

Billions over a few years there's still some levelof ongoing cost. There are multiple Labor reforms that have introduced structural spending likeMedicare, the NDIS, and higher education funding, but there have also been Liberal reforms thathave introduced structural spends as well like when John Howard introduced the privatehealth insurance rebate which has increased over time. But instead of a back and forth titfor tat what do long-term trends tell us? Well I found an analysis that found that the averagespending to GDP ratio is 24.5% for Labor versus… 24% for Liberals. That's right it's not avery big difference, and also this is if we are purposely ignoring Scott Morrison. No, we'renot ignoring him out of criticism – we're ignoring him to actually be nice to him in this instance,because the author of the study acknowledged that.

They decided purposely to exclude the recent highspending during the last two years of the pandemic as to not throw off the average. Sure, Morrisonabsolutely wouldn't have spent that much money had the pandemic not happened but you could saythe same for like you know Rudd if the GFC hadn't happened, or Keating if the global recession ofthe 90s hadn't happened, or Whitlam if the 1970s oil crisis hadn't happened. Spending isn'tjust a simple thing that you get to plan out all in advance forever it's actually oftenresponding to external events and economic shifts, so if we're being favorable to the Liberalswe see that spending over the past 50 years has been pretty even. If we aren't being favorableand just examining definitively the past 50 years, Liberals have vastly outspent Labor. Whitlamhowever was a big shift in government spending,.

What programs existed, and what responsibilitiesthe government took on board, but once he reset the bar for government spending the averagesdo not definitively prove Labor to be bigger spenders in relation to their economic growth.So that's where that idea comes from. In fact Bob Hawke in his memoirs talks about trying toshake the reputation that Labor are reckless and irresponsible. In fact Paul Keating as treasurerunder Bob Hawke delivered three budgets in a row where government spending decreased in real terms,meaning that he managed to return the budget to surplus. So while Labor at times did increasespending they also found a way to pay for it or decrease that spending. Then a global recessionhappened which threw the budget out of whack, the economy then recovered under Keating, andthe deficit returned to just one percent of GDP,.

Just before Howard inherited a strong economy. Sowhile the idea that Labor our biggest spenders is actually based off something, and it is true, it's40 years out of date. It's no longer true when you look at the statistical averages. It's just whatyou know governments spend money on varies from Prime Minister to Prime Minister, be it you know afocus on housing, infrastructure, public services, investment in renewable energy, technology,or on the military, and so on, and so on. In fact Malcolm Turnbull's spending to GDPratio was 25.8 percent in 2016 – which he then planned on decreasing to 25.3 percentby 2020. That's a decrease in spending, sure, but it's not pre-Whitlam era's level ofsmall government. In fact Whitlam’s spending to GDP was 24.3 percent. Malcolm Turnbull planned ondecreasing spending to 1% more than Gough Whitlam..

Even with the 2019 tax cuts under Morrison theywere projected to decrease government spending from 25 percent of GDP to 23.6 by 2029 to 2030,which is less than Whitlam but not even by 1. Under the John Howard years spending wassometimes over 25 percent and sometimes down to 23.2 percent, and often in between, giveor take a percentage point fraction, around 24%. Just like the statistical average foretold.Government spending goes up and down up and down even within the term of a single Prime Minister- it's just that the average over the past 50 years again has not proven to show Labor to besignificantly higher spenders in the long run, just higher spenders in some cases. Broadlyspeaking the budget has been stable for the past half a century. There have been surplusesand deficits under both Labor and Liberals because.

That's how governments function. However JohnHoward, was one of the biggest spenders there was. A study by the International Monetary Fund, orIMF, examined 200 years of government spending across 55 leading economies around the worldand came to the conclusion that there were two periods of large wasteful spending in Australia- both of which were under the John Howard era. They happened in 2003 and 2005 to 2007. What washappening around then? I can't remember, I wasn't even a teenager in 2003 so *vague noises*. TheIMF is an international financial institute that consists of 190 countries and provides financialassistance and advice to its members. Spending increased in the last four years of the Howardgovernment faster than any other four year period since the 1990s, but his revenue was so high thatit didn't increase debt. This is why we factor.

In things like GDP ratio not just a figure inbillions. If you have lots and lots of revenue you can spend lots and lots and lots and it doesn'timpact your budget. Howard and his treasurer Peter Costello would prepare budgets that predictedgovernment revenue, only to be surprised by just how much more money they had thanks to theunprecedented sustained economic growth and the mining boom. Every other government by the wayhad to deal with some kind of economic shock. So while by the end of the Howard era we had anactual surplus of government money instead of any government debt, the independent ParliamentaryBudget Office found that Howard had a structural deficit in his budget – so that surplus would havegone down had Howard continued in government even if the GFC hadn't happened. So debt isn't onlytied to government spending, and is also heavily.

Dependent on government revenue, and the economicconditions that surround that, as well as like what do you do in a long-term sense forhow you structure your spending. If, say, Rudd for example had the same revenue that Howarddid in his final year then Rudd would have had an extra 52 billion dollars. Rudd's stimulusthat helped avoid a recession during the Global Financial Crisis by the way was 51 billiondollars. So yes, debt did rise under Rudd, but if he had the same economic conditions healso would have had a surplus. But of course those economic conditions were reliant on like iron oreprices. This is why we're focusing on you know statistical trends over 50 years because you knowif you say, focus on the last term of John Howard and the first term of Kevin Rudd, and then startmaking grand assumptions about you know Liberal.

Versus Labor economic management that wouldbe garbage. That would be nonsensical garbage picking the worst economic crisis since theGreat Depression and then comparing it to the greatest mining boom in Australian historyand going “look! They're different! This proves what I want it to prove!” is called cherry pickingand bad data analysis, and oh my goodness could you honestly believe if someone decided toremove all context and depth from a complex issue and then make it like the sole foundationof an argument as to whether or not one party is good at economic government and one isn't? Couldyou imagine something so one-dimensionally bad? Thank goodness no one has ever done that. Commentdown below your worst hot takes but, like, pretend that you're serious so everyone gets mad andthen tries to correct you. *whispers* Please.

Don't. (Normal) I talk about you know spending,and averages, and whatnot – not a value judgment as to whether or not slightly more spending oryou know budget cuts are good or bad. Again: up to you to decide what that is. Interestinglyenough we haven't always had the same attitude towards spending. Robert Menzies, the longestserving Prime Minister in Australia's history and founder of the Liberal party, actually firmlybelieved that spending was good. So while recent Liberal Prime Ministers have promoted budget cutsin some areas, Menzies deliberately created large deficits. He said, and I quote, “too few peoplerealize that a cash deficit of 120 million pounds will of itself have a most expansionary effect. Weshall pay out to the citizens 120 million pounds more than will be collected from them.” In 1962Robert Menzies bragged about how he had a deficit.

Of 120 million pounds whereas Labor on the otherhand had only promised a hundred million pounds to eradicate unemployment. Menzies was experiencingstrong economic growth during the post-war period. His last nine budgets were deficitsbut GDP growth was more than debt so it worked out. So while people look backat Whitlam spending as a massive increase and quite a lot, which tobe fair it was at the time, contextually he was maybe potentially taking onboard the attitude of Menzies. “I mean like well, you said Labor doesn't spend enough. So I’m gonnafix that!” But let's get back to debt, right. If we examine the debt to GDP ratio then Howarddoes come out as the one with the lowest debt to GDP – he after all had an actual surplus. His debtdid just go down, down, down, down, down, while.

There are ebbs and flows with other governments -and even when debt to GDP went back up under Rudd and Gillard during the Global Financial Crisis thedebt to GDP ratio was still around the same peak as other previous governments -which includesboth Labor and Liberal. The other noticeable dip was the final years of the Hawke governmentpre-recession where it was going down, down, down, much like the prices at Coles. But it's time toblow your mind here – debt… isn't actually bad? At least not inherently. Governments actuallyoften operate with a budget deficit and some level of debt. It's not like someone's going tocome in and repossess the Prime Minister's couch and TV if they can't pay it back 100% withinthe next few months. In fact the IMF and plenty of economists say that some level of debt is goodto take on. Government debt is a tool for raising.

Money for public development and while governmentrevenue can be increased over time by like raising taxes that is a long-term action whereasyou can take on debt to pay for an infrastructure project and then let future taxes and economicgrowth compensate for the current spending. That debt can then facilitate the economic growthto eventually repay or even out that debt. But when does debt become too much? Well thereare a bunch of factors that make debt either sustainable or unsustainable but to simplify it:interest rates versus economic growth. Let's take for a moment the record high debt accrued underthe past nine years of the Liberal governments Abbott, Turnbull, and Morrison.Morrison by the way was treasurer under Turnbull so he's got his finger in somepies. It's, he's, they've been sticky for a while….

That's such a weird way to say it. Debt hasconsistently gone dramatically upwards and had doubled from 2013 to 2018, only for thenthe pandemic to further cause it to climb now to around 1 trillion and growing. While of coursethat pandemic spending was a naturally unavoidable increase – two-thirds of it was borrowed beforethe pandemic and the cost of repaying the debt is forecast to increase faster than governmentrevenue. Now that sounds like a problem however the cost of servicing that debt so the interestis predicted to stay at around 0.7 percent of GDP over the next few years meaning so long as thereis sustained economic growth higher than that then the debt can increase but the government is stillpaying off its interest. And if you are confused how that works again there's a copy of the scriptwith citations. This is actually taken from like.

People smarter than me. Now, when people think ofdebt as something that goes wrong for governments they bring up Greece – which had a massive crisis.To compare it with say Australia, Greece’s debt to GDP ratio rose from 127% to 179% between 2009 and2017 whereas Australia's ratio at the same period rose from 16.7% to 41%. So it's not actually ata crisis point yet. I don't know when it would become a severe crisis point – so while people mayargue “Labor increased debt under Labor Gillard that's bad” and then others counter with “Abbott,Turnbull, and Morrison have tripled that debt that's bad” I’m going to continue this episode andelaborate on more metrics for economic management without imparting personal judgment becauseagain this is a criticism-free zone. So remember debt can increase but so long as GDP growth ishigher than the interest on that debt then it can.

Be sustainable so let's examine GDP growth. Whohas achieved better economic growth in the past 50 years? Just a note we are going to be lookingat some very small numbers but a 0.01 quarterly difference equates to around 2.3 billion dollarsover three years so with that in mind let's rank them. Gough Whitlam for Labor 0.69 percent growth- nice – Liberal’s Malcolm Fraser 0.46 percent growth, Labor's Hawke/Keating 0.91 percentgrowth, Liberal’s Howard 0.91 percent growth, Labor's Rudd and Gillard 0.63 percent growth,Liberal’s Abbott and Turnbull 0.6 percent growth, and then if we include Morrison that drags therecent Liberal government down to 0.46 percent. The average GDP growth of all these periodsfor Labor is 0.74 percent versus the Liberals 0.61 percent with Abbott, Turnbull, and Morrisonyears down at the bottom with Malcolm Fraser..

Howard served as an individual Prime Minister forthe longest but the Hawke and Keating eras were collectively longer by about a year. Even if wefeel like Morrison's performance has been unfairly uh influenced by the pandemic, even thoughthat would be actually unfair to exclude that, we're still going to do that and the Liberals have0.65 percent – which is still on average lower than Labor. But people don't consciously feel ashift in 0.01 percent GDP growth because they're not sharks who we all know have economics degrees.They care more about say their wallets and how much they personally can spend, which brings usto: real wages. Basically, real wages are the money you earn adjusted for inflation, unlike fakewages which is where your employer tries to give you monopoly money. If you earn say 50,000 in ayear and then get a raise to 51,000 in a year but.

In that year inflation has gone up by 3 percentthen that 51,000 is actually worth less than the previous 50. This is because everything elseactually costs more relative to that money, so while your wage appears to have gone up asa number your real wage has actually gone down. So when economists say real wages they're talkingabout the actual use of that money not the specific number in your bank account. Positivewage growth means you are effectively richer, negative wage growth… you get the idea. So in thepast 50 years Gough Whitlam had the highest with 5.8 percent wage growth, Fraser went backwardswith negative 0.1 percent wage growth, Bob Hawke averaged at 0 – so dead even – real wage growththen climbs to 0.5 percent under Keating, then rises even more under Howard by 1.3 percent, whichis pretty much even with Rudd with 1.3 percent.

As well and 1.2 percent under Gillard, then underthe latest Coalition governments under Abbott and Turnbull we saw a decline of negative 0.6 percent.And under Morrison wage growth has continued to be outstripped by price increases and so realwage growth is in the negative with 2021 seeing the worst decline since the GST was introducedunder John Howard, which, for obvious reasons, made spending power go down because it instantlymade a lot of things go up by 10 percent. So while the wage growth isn't particularly impressiveunder Hawke, and Howard of course easily beats Keating, that does still mean that four outof five Labor Prime Ministers had positive wage growth whereas the Liberal party only hasHoward – one out of five in the past 50 years. To give you some context instead of just randomsmall percentages, if real wages had continued.

To grow under the same rate as they did under Ruddand Gillard instead of the wage stagnation under Turnbull, Abbott, and Morrison, then the averageworker would have had an extra 254 dollars a week according to an analysis by the McKell Institute.But if you don't have a job, then what do wages mean to you? So let's examine unemploymentjust so people don't tell me that I didn't include it. For decades both Labor and Liberalspursued an economic agenda of spending and full unemployment. There was a less than two percentaverage of unemployment between 1950 and 1974 but economic thinking has shifted a lot sincethen including the idea that unemployment should actually be more around say 5 or 6 percent as ameans of curbing inflation. It's called NAIRU. N-A-I-R-U or the Non-Accelerating Inflation Rateof Unemployment. Ooh what a fun accu-accu-aconym….

Acronym. But what does it mean? Basicallyright the idea is that if unemployment dips below a certain point thenwages and inflation both rise, but if you have too much inflation thenpeople have difficulty affording things, so it's all part of a big balancing act and it'sactually been the aim of governments for decades not to decrease unemployment below a certain pointbecause the dominant economic thinking was that it would be detrimental to the inflation rate. Soif you're unemployed it's not like you don't have a job, because you're working as an economicbuffer! But also like unemployed people are real human beings and unemployment can happen toanyone so it's just super weird to refer to them as like a little number in a big vague abacusthat only economists get to look at and go “hmm…..

Inflation.” It's only recently that manygovernments have re-examined those ideas about unemployment and its relationship to wagesand inflation and what ratio works etc. The most recent budget by the Morrison government as ofthis episode lowered the NAIRU threshold to 4.25% so it wasn't actually the aim to get it downto 4 percent until recently. Unemployment is important but also the ratio of part-timeworkers to full-time has increased over the past several years and so just sayingunemployment is at 5 percent instead of 7 percent might not actually mean much without going intothe specifics of what kind of employment that is. It's also hard to judge long-term ratios of casualwork over several decades as the methods for collection of data by the ABS makes a comparisonover 50 years difficult. So instead of making.

Grand assumptions about trends I just won't…that's right. I’m not going to give you anything here. This section is just so you don't complainthat it doesn't exist. While comparing taxes or debt to GDP gives us a framework for examining itwithin the context of the economy, simply saying 4 percent, 5 percent, 6 percent, without knowingthe stability of the employment, or if youth unemployment is high or low, or how many employedpeople have so few hours that they rely on welfare still, etc, is just not a useful thing for me tosay. This isn't a point scoring match and I did not find a sufficiently easy way to understanddata to make these comments that covered the entire time period. Suffice to say unemploymentgoes up and down under both Liberal and Labor governments – this is obvious. But if I excludeit someone's going to get mad so there you have.

It! It's time for our conclusion. It's near theend! Yay! Now it's important to note that this comparison of economic performance and indicatorscan't take into account policies or reforms that the governments benefited from from previousgovernments. While I did find articles that said things like Keating and Howard both benefitedfrom reforms under say Bob Hawke it didn't provide any like percentage or like meaningfulmetric to be like “yeah, well Hawke provided at least two percent thingy to this GDP growth.”And things like government spending or revenue don't exist in a vacuum – they don't reset fromscratch after each election. This is also not a commentary on whether or not spending and taxesare good or bad, that is entirely for you – the voter – to decide upon. This is just providing youagain trends and data and information to help you.

Understand the broader scale of how economicgrowth, taxes, and spending, can shift over time. So let's revisit those three assertions from thestart of this episode: one) the Liberals are just better economic managers, two) Labor just spendsway more, three) the Liberals have lower taxes. It's clear from the data thatnone of these are inherently true and there aren't any obvious trends to back itup. GDP growth fluctuates, spending fluctuates, taxes fluctuates on both sides. On an individuallevel there might be higher taxes or spending for Labor versus Liberal – but statisticallythe averages don't allow for such definitive criticisms that I hear from people on socialmedia that I strongly suspect don't actually have degrees in economics. It is however reasonableto assume from this data that assumptions like.

“Labor can't manage an economy” is notbacked up by anything. Some policies will be good in your opinion some policies will be badin your opinion – it's up to you to examine them as they are proposed by each successivegovernment. Of course not everyone votes on economic policy. There are many reasonswhy people vote for different parties, like support for an infrastructure project,or climate change policy, refugees, aged care, housing. There are plenty of people who vote basedoff social issues and there are parties who hope to gain support based off shared values – likein the 2022 election there are multiple Liberal members running, Scott Morrison included, who havea conservative view towards transgender people, or how the Labor party supports the Uluru statementin full, or how the Greens as a progressive party.

Want drug reform and to legalize cannabis, or OneNation as a right-wing nationalist party wants to heavily reduce immigration. Parties often havecomplex policy platforms that cover a large range of issues and creating jobs and having a goodeconomy is a pretty standard inclusion. How they go about that, well, that's where the partieswill differ. How those differences influence the country is up to you to decide. Again: whoyou vote for is entirely up to you. It's not up to me to tell you why or who. I am just hereto provide you information. As I always say: read policy pages, look up what parties want toachieve, find comparisons between them, examine who you would like to vote for for every election,give it some thought, and best of luck! And hey if you'd like more information about those parties– subscribe. I’ll be doing some policy comparisons.

As well as just, you know, in general teachingyou how the Australian political system works. Thank you so much for enjoying this episode.Please do share it, and don't forget to like, comment, subscribe, etc, all those sortsof things. Thank you very much to those who support me on Patreon. As always I have beenyour host and I will see you next time *clicks*

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