A job for the private sector

SIR, Dr Quiggin refers to my proposals to reduce net government spending on education and health ("Categories set up hurdle in savings debate", AFR, March 20).  He claims that I justify such proposals by "critiques of human capital theory", by arguing that "education is really a form of consumption" and by claiming that "reductions can be made without affecting either the quantity or quality of output".  Such sweeping and unjustified assertions are difficult to rebut in a short letter.  Dr Quiggin fails to understand the basis of my proposals.

First, there is a need to increase national saving.  Reductions in net government spending on, say, tertiary education and health that are achieved by requiring most middle- and higher-income groups to meet their tertiary education and health costs will reduce government dissaving, and also tend to increase private saving, regardless of whether or not education includes an investment element (which it does).

Second, such action will avoid the need to increase taxation and the adverse effects which that would have on the incentive to work and save.  Dr Quiggin seems to assume (wrongly) in all his writings that existing levels of taxation, let alone higher levels, have no adverse effects on economic activity or unemployment.

Third, my approach would, I submit, be more equitable in that it would focus government tertiary education and health assistance on lower-income groups.

More broadly, contrary to the assumption implicit in Dr Quiggin's analysis, a reduction in the provision of health and education services by government does not necessarily mean a reduction in total spending on such services.  Australia has substantial private-sector involvement in such services and there is little doubt that, particularly if tax burdens are reduced, these will grow.  Total Australian health and education spending (that is, both government and private) is broadly in line with total spending in other countries with comparable income levels.

Government has proved a relatively inefficient provider of education and health services.  The more that such services are left to the private sector to provide, the better we are all likely to be.

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