Just saying hello on your new site.

If spine transplant become a reality there are two scenerios that should be investigated – A good spine for Peter Costello!!
- Keep Peter Costello OFF the donor list…LOL!!!

However, things are more complicated than you imply with your post. First, a lot of hard work on the public finances was also done under Hawke-Keating. The budget black hole that Costello made much of was just 1 per cent of GDP from memory – and that was largely due to the mid-cyle slowdown of the mid-1990s. Second, apart from their first budget, Howard and Costello allowed growth in tax-revenue to do most of the work for them – over the full course of the government they have showed relatively little expenditure constraint. It would have taken a pretty incompetent government to run budget deficits during the current commodity price boom. Third, I think fiscal policy should have been more counter-cyclical during the last 4 or 5 years. Simply spewing out the extra revenue in terms of tax cuts and spending has done little for Australia’s longer term prospects. That is not to say that Labor would have spent the money more wisely had they been in government, but there is a big difference between presiding over a boom and being responsible for it.

Overall, I think Costello was a good but not great treasurer – his reform credentials do not stack up with Hawke-Keating (tariff reform, financial deregulation, the float, National Competition Policy, the move to enterprise bargaining, HECS – I could go on). That said, Howard-Costello will be looked on more favourably than Fraser-Howard (though the negative shocks were greater in the early period) and Whitlam-et al. Only time will tell how Rudd/Swan will do – but so far I have seen little to suggest they will be a genuinely reformist goverment – but I also don’t expect public finances to deteriorate under their watch.

See No 9’s glowing report of Australia’s public finances – diligently presided over by the greatest and longest serving treasurer in our history: Peter Costello.

“No 9
Can we now have Labor supporters cease their endless denigration of Peter Costello?”

Why?

Can we now have Labor supporters cease their endless denigration of Peter Costello?

Congrats on the site – I hope it works out well….

I’ll also comment on the health aspect of this part of the thread.

Broadly, I agree with Caf. A feature of Australian welfare policy (I am including health in this just to make a point) is that it isn’t funded actuarially. That is, today’s generation doesn’t directly set aside, through taxes or other levies, money for its own retirement/health costs. The SGF was set-up to correct this for retirement income, but isn’t large enough to ensure that publicly provide pensions won’t have to be drawn on as well, even for those that have worked their entire lives. There has been no attempt to fund healthcare actuarially. When there aren’t demographic “bulges” – this isn’t a big deal – general revenue would be adequate, without having to raise taxes or make schemes less generous (I’m not going to comment here on the tendency for nominal health spending to grow faster than nominal GDP – separate policies are needed to address that).

However, as we know, there is a demographic bulge (the baby boomers) and they won’t have paid enough taxes to provide for their own retirement and future health. In addition, this could get worse over the next decade or two, if boomers in retirement agitate for more generous pensions/health care – and are successful because both major political parties will target their votes.

We really needed a Health Future Fund, when the boomers were in their prime working ages – now if one is set up, the incidence will also fall on current X and Ys. I think it is inevitable that tax rates will have to increase in the future, because I don’t believe that the political will to reduce expenditure exists.

On a positive note – the concerns expressed by the CIS are a bit exaggerated. First, Australia’s population is not aging as rapidly as many other industrialised countries. Second, welfare policy isn’t as generous as in many other countries. Third, there is a large private health and pensions industry sitting alongside the public schemes. That is why the intergenerational report was fairly sanguine – Australia faces a fiscal gap by around 2045 (I don’t have that year exactly right) of between 3 and 4 per cent of GDP. Now, we can also argue about whether the paramaters underlying that projection are accurate – and it will still need to be closed – but it isn’t that big a deal. Let’s face it – many European countries currently run budget deficits larger than that!!! Overall, Australia’s public finances are in very good shape – so as a country, we are in a very good position to face the upcoming demographic challenges.