Irresponsible spending taken to a new level

Kevin Rudd has delivered a Nike "swoosh" Budget.

The charts in the Budget papers illustrate the reality of the present economic downturn together with fantasy forecasts of future upticks stimulated by government splurging.

Governments don't actually have any money to splurge.  All they can do is shift money into different buckets by taxing and spending.

Spending on education, roads and other infrastructure is clearly valuable.  But most government expenditure is far less productive than leaving the money with the taxpayers who earn it.

Back in the early 1970s Commonwealth spending was less than 20 per cent of national income.  The Whitlam years saw this rise to 24 per cent and it continued to grow until the mid-1980s.  Concerns about excessive government spending causing loss of economic competitiveness saw spending reined back to below 24 per cent before the Rudd spendathon got into gear.

Now Commonwealth spending will hit a high of close to 29 per cent of national income.

And don't be fooled by the Government solemnly promising to keep future annual spending increases to 2 per cent.

Within a day of this pledge, Treasurer Wayne Swan announced further increased spending "if the recession deepens".

Governments subject to little restraint in their spending can easily bankrupt and destroy nations -- think Hitler or Napoleon.

Prior to the modern era, parliaments were bulwarks preventing excessive spending -- the American War of Independence was fought by colonists who rejected new taxes without parliamentary representation.

But now that the government and the major parliamentary party are one and the same they have a common interest in re-election.

This often involves giving money to Peter (who will gratefully re-elect the government) by taking it from Paul (who is kept unaware of losing it or who would not vote for the government anyway).

For the most part taxing and spending is restrained by fears about the consequent work and investment disincentives.

Even so, almost all politicians would rather see economic disaster than face being voted out of office.

And they can often retain office by spending -- if the damage doesn't show up until after the election.

This brings us back to the Rudd Budget.

In the past the Treasury Department was a moderating influence over politicians' spending excesses.  Treasury, aware of politicians' weaknesses in favour of spending, reminded them of the adverse economic consequences.

This has changed.  Treasury is now joining the politicians in stoking the fires of irresponsible spending.

Treasury Secretary Ken Henry has urged the Prime Minister to spend recklessly on taxpayer giveaways.

The Treasury Department has also been the lead player in advising the Government to introduce a comprehensive new tax on energy that would strike at the heart of the mining and energy-intensive industries that are the backbone of the Australian economy.

The 2009 Budget raised spending to a new plateau.  Considerable pruning will be necessary to restore economic health.  But as Treasury is now part of the problem, this will require replacement of the key officials.

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