The Dangers of Being European in Asia

By Greg Sheridan

In all our history, the thing that has set Australia apart from its region is its European identity. Now, our European political culture may have grown so profligate and internally contradictory that we may be all but unable to implement social policies we can pay for.

Geoffrey Blainey need never have worried about the Asianisation of Australia. Malcolm Fraser and the Greens can forget their concerns about Americanisation.

Instead, our political culture, and our looming economic dilemma, has become European.

Economic policymakers describe a tipping point at which such a large part of the electorate is directly dependent on government, not for infrastructure or education or traditional government services but for their primary income, that it becomes impossible, except in the most extreme crisis, to gain an electoral and legislative majority for any program that involves cuts to transfer payments and concessions.

Consider just these few telltale numbers.

When the Australian Bureau of Statistics first began its quarterly labour force time series in 1984, the largest single sector of employment was manufacturing. It stayed No 1 until a tipping point in 2002. In that year retail and manufacturing both employed 11.5 per cent of the workforce. From 2003, retail became No 1. Both retail and manufacturing are private enterprise activities.

In 2010 a new tipping point was reached. Healthcare and social assistance became the largest employer, with 11.2 per cent, displacing retail. Health and social assistance are dominated by government providers and government funding of private providers.

Last year, free market think tank the Centre for Independent Studies compiled figures on who works directly for government, or receives their main income directly from government.

Its figures are from 2010 but won't have changed much. Some 13.5 per cent of voters were employed directly in the public service. Some 16.5 per cent of voters receive a full or part aged pension, 6 per cent the disability support pension and 3 per cent the Newstart allowance. Altogether, about 35 per cent of voters get government payments. Somewhere between 40 per cent and 50 per cent of voters receive income directly from government.

Now consider something else. Although the Howard government was nowhere near as profligate as the Rudd and Gillard governments, it introduced or increased many direct transfer payments and a bewildering array of tax rebates and concessions. In one of its last reforms it made income from superannuation tax-free for people aged over 60. As the promoters of self-managed superannuation funds constantly point out, this means that, over 60, you can have a very big superannuation income and pay no tax. This is very European in spirit.

The most efficient tax system is one that treats all forms of income equally. One of the central features of the European social democratic model is its bureaucratic and financial complexity. This has many results. One is that quite affluent Europeans benefit directly from transfer payments or tax concessions.

They thus have an incentive to keep voting in favour of the bloated welfare state because, even though they are affluent, they get much of the so-called welfare.

Over-60s paying no tax means they have no stake in the tax system. There is no policy price signal, as it were, through tax. Narrow economic self-interest will tend to incline them to vote for political parties that promise the most direct benefits.

The old policy question - Can we afford this? - has no direct personal application. And of course they will resist losing tax concessions.

Some of the most affluent, and conservative, voters in society will tend to vote for programs that are profligate or, to be less judgmental, unaffordable and unsustainable.

Having just spent a month in Europe, I am struck by the Europeanisation of Australian political culture. Let me offer you one example of the irrationality of EU transfer payments. I met an affluent Australian who lived in London and owned a holiday home in Italy. For aesthetic reasons he planted some clumps of olive trees. On one visit neighbours told him that EU officials wanted to get in touch with him. Perhaps I have to pay some tax, he thought. But no; the EU officials wanted to tell him that under the Common Agricultural Policy he qualified for a payment just for growing ­olives.

So notorious has the EU transfer payment system become that a common spam email says that the EU is trying to get in touch to pay you money.

Australia does not yet have a European-size of government. Julie Novak of the Institute of Public Affairs, using Internat­ional Monetary Fund figures and some work by the Cato Institute in the US, has produced a comprehensive table comparing the size of government in various countries. Different people's lists and tables differ slightly, but the overall figure is roughly similar in most such efforts.

Measuring just government expenditure fairly narrowly ­defined, the three tiers of Australian government together ­account for about 37 per cent of gross domestic product. That is well below the European leader, France, at 57 per cent. But it is getting close to the 43 per cent of GDP that government accounts for in Ireland, and the 45 per cent in Britain and Germany.

1 | 2 | Next Page››

Greg Sheridan is the Foreign Editor of the Australian.
Sponsored Links
Related Articles
June 10, 2014
Spain's Monarchy Faces Challenges as New Era Dawns - Carlos Alberto Montaner

Greg Sheridan
Author Archive