You are visitor number ( ) to this page, since 17/12/99 thankyou.

Probably the main argument consistently put forward to support both the need for a budget surplus and reduced spending is that it will allow us to reduce debt. So we need to examine the question of debt and ask whether its only governments which have budgets which need to be in surplus in order to reduce debt. Everywhere, from individuals to small businesses to large companies debt abounds but what do we hear about the need for all these other budgets to be in surplus to reduce that debt? Not much and certainly not the outcry we hear in relation to government budget surplus and spending/debt issues. Of course budgets need to take account of debt and be able to service it, meaning pay off the interest at least and hopefully some of the capital.

In fact a very simple examination of our financial system reveals that a very large proportion of individuals, small businesses and large companies are in debt, and deliberately so. At the simplest level many small businesses run on overdrafts in order to avoid cash flow problems, large companies use loans to expand their income generating base and rely on that income to service the loans, and most Australian homes are not owned but mortgaged because few people have the capital to buy a home outright. So why are governments being singled out and treated as a special case, somehow different from other areas of economic activity? If government should be run like a business why doesn't normal business `wisdom' apply to it?

In fact there is a conventional economic investment wisdom which suggests its better to be in debt with capital free to expand potential income generation than to pay off debts and leave oneself restricted and unable to expand. So why is this not applied equally to government activity? Governments are probably the biggest investors of all in the overall base of economic activity, the areas of infrastructure and maintenance of income generating capacity. Any private enterprise would be encouraged to spend in order to expand capacity in both of these areas, even if it meant expanding debt, so long as income generation was the outcome. In the conventional wisdom it is often seen as sensible to 'spend your way out of debt'.

It is undoubtedly true that much government administration and enterprise has been inefficient but this has been more to do with methods of administration and underlying (though often hidden) assumptions about the role of government than a fact of life as it is often presented. It is also equally true that many large private corporations are inefficient and bureaucratic.

Areas such as health services, as an example, need not to be seen as income generators but as subsidised services. These are maintenance services which like maintenance in any area of business cannot be expected to generate income. Infrastructure maintenance needs also to be seen in this light. The whole question of infrastructure and it's maintenance need to be examined further as does the fact that the profitability of much private enterprise is supported by public funding of infrastructure.

The current attitude, which is to reduce maintenance costs and sell of profitable public facilities is counter productive. Private enterprise has a poor record in maintaining services and keeping costs down in the long term. Witness for example the changes since deregulation of banking and the sell off of the Commonwealth Bank. Customer services have declined in quality and prices for those services (fees) have risen outrageously whilst bank profits have soared. In the same process government revenue has been lost as company tax is less than the direct contribution the CBA made to treasury coffers.

If we return to the spending and debt aspect of things we may begin to see things in a very different light here. Governments on behalf of taxpayers, and let us not forget that PAYE and small business tax payers account for the majority of tax paid, have invested huge amounts of capital in infrastructure. If governments have accumulated debt in order to expand and maintain these structures then it is clearly arguable that they have a right to set fees for services provided which allow them to service and reduce these debts. It would be mismanagement if they did not. Whether these fees be direct charges for services or indirect fees in the form of taxes is a secondary argument. There are points in favour of both views, which is another discussion about the nature and fairness of various forms of taxation. Suffice it to say that fees or taxes need to be fairly aimed at the biggest customers, large corporate users rather than subsidised by higher charges to smaller users (individuals and small businesses). This is not usually the case; its usually the big customers which get the discounts.

There is no reasonable argument that if expansion and maintenance of infrastructure requires occasional loans it should be sold off in order to reduce debt. This is equivalent to saying that a company should sell off a potentially profitable enterprise to reduce debt rather than borrow in order to improve its income generating capacity. Debt is in fact an essential fact of business life in the economic system as it stands and all the hue and cry about government needing to have budget surpluses in order to reduce debt is distinctly hypocritical. No self respecting business would see a competitor who wants to buy into its market as a good adviser on how to maintain its position. All the less so if the advice was to mark itself down and sell up at fire-sale prices, which is what private advisers suggest governments should do. Its not hard to guess why.

One could be forgiven for thinking that private enterprise sees government as a competitor with assets that it wants to get its hands on. And the best way to do that is to convince the governments shareholders, the taxpaying public, that government business (the potentially profitable aspect of it at least) would be better off in private hands. To sell of government enterprises in this way amounts to a form of asset stripping by stealth. Huge investments of public capital are sold off for no other reason than that private investors can see an advantage to themselves. All the rationales about better services and prices due to competition are really just a means to an end. The banking sector already referred to is a clear example of this.

The argument that reducing government spending is somehow innately a good thing are no less disingenuous than the ones about privatisation. Inefficiency and over bureaucratic structures indeed need to be addressed as they do in any business situation but cutting costs for its own sake is not justifiable. To downgrade essential maintenance simply in order to reduce costs is really counter productive and the costs must in any case be passed on because the necessary services do not cease to exist because advisers believe them not to be part of government's role. Recent examples of this ideology being played out are seen in the debacles over nursing homes and the sell off of employment services. In both cases costs are being passed on to the so called 'customer' which far outstrip the previous cost to the user or community. It will always be individuals and small businesses which bear these costs of privatisation in order to reduce government spending and the tax cuts offered as a trade-off for our complicity in this chicanery will never really compensate for what we lose.

We need to support political parties which have good policies in these areas and we must 'sell' them forcefully in whatever way in and any forum we can, however much they run against the current of mainstream thinking. Recently the newly elected coalition government in New Zealand has begun to reverse over a decade of economic rationalist policies with strong community support. Maybe we are beginning to see a change in public attitudes.

Rod Ravenswood © 2000