Cap on Government size desirable, but probably unachievable

The great British-Australian economist Colin Clark, who Keynes regarded as “first class” and who served in top Queensland public service roles in the 1940s, famously speculated that Governments couldn’t grow beyond 25% of GDP without causing major economic problems. Given that relatively low spending Government sectors such as Australia’s now spend 35-40% of GDP, Clark’s prediction was probably a little bit alarmist, with the benefit of hindsight. That said, it appears clear there is a large amount of wasteful government spending, particularly on corporate welfare/industry assistance, and Australia needs a debate on whether we can feasibly shrink our public sector, or at least limit its growth over time.

Hence it’s good to see the Business Council of Australia President Tony Shepherd calling for “a hard cap on the size of government” in an excellent speech today. Unfortunately it will never work, because politicians wouldn’t want to tie their hands in this way, but it’s a great idea. The Centre for Independent Studies has also recently launched the Target 30 campaign to cut Government down to 30% of GDP (see this Australian report, Wasteful public spending targeted).

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4 Responses to Cap on Government size desirable, but probably unachievable

  1. Chris says:

    Good morning Gene: I have sent a copy of the below, with slight changes and format to the BCA for comment.

    Overall I agree in part with the sentiments of the BCA speech although I have a few observations and reservations.
    Firstly, this is nothing new. Much of what is stated was raised in the Karpin Report in 1995 and subsequent reports and speeches put out by the BCA and others. Initiatives proposed within that report addressed the weaknesses in Australian management education, training and development to address the challenges of the future as identified at that time, e.g. Asia Pacific rim. Although the report was tabled in 1995 those drivers of change are relevant today. Unfortunately the message simply isn’t getting through to Australian business.
    Secondly, to achieve competitive advantage the mindset of quotas as referred to by having 50% of women in management positions is redundant thinking. By continuity referring to this so called inequality is counterproductive, equity not equality needs to be the goal. BCA’s approach is righting the past wrongs. I encourage those interested in this area to read Roosevelt Thomas, Jr, World Class Diversity Management for a deeper understanding and why the approach by the BCA as it is presented in the speech, is doomed for failure.
    Thirdly, the reliance on any organisation on 457 visas to supply labour in my opinion is poor workplace planning and strategic management. It is interesting to note that within the speech Mr Shepherd refers to skilling Australia for future challenges and also the reliance of 457, this is contradictory, and does not instil confidence that Australia business is mature enough to tackle future employment opportunities and challenges.

    Fourthly ageism. Deloitte Access Economics (2012) has estimated than an increase of the participation of the mature age with the workforce than an increase of 3 percentage points on participation among workers aged 55 and over would result in a $33 billion boost to the GDP and a 5% increase would result in a $48 billion in extra GDP or 2.4% of national income. Although it is well known of the benefits of employing older workers many employers are reluctant to follow through. In April 2012, a report by McKinsey (quoted in Older Workers, 15 October 2012) that although respondents acknowledged that key diversity issues impacting Australia is a shift towards an older workforce (58%) they were failing to translate this to their business and workforce planning. Furthermore the report stated organisations were failing to translate their words into action with many “talking the talk” about diversity and inclusion but in reality failing to “walk the walk”. Obviously there is a lot of work needed to be undertaken by the private and public sectors to remove their discriminatory ageism practices and mindset if they are to increase productivity to meet the challenges of the future. Furthermore this raises questions such as is there really a skill shortage in Australia at all?

    Fifth. Mr Shepherd congratulates Premier Campbell Newman on ‘lifting teacher quality’, although he has not mentioned the appropriateness or otherwise responsible fiscal policy of injecting $140m into the racing industry. If one is to follow the sentiments within his speech that business is to be competitive and stand on its own two feet it follows that he would be unsupportive. A more balanced assessment of the Newman government’s first year in office would be helpful.

  2. Gene Tunny says:

    Chris, many thanks for your comments. Much to think about. Very good point regarding assistance to the racing industry.

  3. Chris says:

    I have provided a reply from BCA regarding my comments to Mr Shepherd’s speech as some may find it interesting.
    I still have reservations about the need for organisations to rely on 457. Sound strategic management and forward planning together with investment in training and development today to foresee the challenges of tomorrow, which in turn builds the capability of our workforce would eradicate the need for the reliance of 457. BCA seems to miss the point that we need to invest now, not tomorrow irrespective of their rhetoric.
    • Feedback regarding speech by Business Council of Australia President Tony Shepherd to the National Press Club‏
    From: Gretta Rosa ( on behalf of Maria Tarrant (
    Sent: Thursday, 2 May 2013 4:14:05 PM
    Dear Mr xxxxxxr
    Thank you for the effort you have taken to write to us with detailed feedback following Tony Shepherd’s speech to the National Press Club. Tony has asked me to respond on his behalf.
    We appreciate your reference to the work of Roosevelt Thomas Jnr, and we will include in our review of research in the compilation of our economic action plan.
    In relation to your comments regarding 457 temporary skilled worker visas, our starting point has always been that priority for employment be given to Australian workers. Businesses overwhelmingly prefer to hire Australians first, because it is cheaper and faster to fill skills requirements from the local workforce. But the reality is that in some sectors and locations where timing is critical, there is not the supply of skilled labour to meet employment demand, and temporary skilled migration works well to enable skills shortages to be filled by foreign workers in those projects. Furthermore, temporary skilled migrants bring to Australia skills and knowledge that they then can pass on to the local workforce and in so doing, held build capability within the economy, which is positive for future opportunities. For these reasons, our view is that a demand-driven, uncapped temporary skilled migration program is essential to Australia’s long-term prosperity.
    Thank you again for following our work.

    Maria Tarrant
    Deputy Chief Executive
    Business Council of Australia
    Level 42, 120 Collins Street
    Melbourne VIC 3000

    Tel: 03 8664 2664
    Fax: 03 8664 2666

  4. Gene Tunny says:

    Thanks for posting the BCA’s reply, Chris. While it would be good if we could forecast future training needs reasonably well, and train up young Australians, it will always be difficult to forecast the emergence of rapidly growing industries such as CSG which have required a lot of skilled labour quickly and hence need a lot of workers on 457 visas.

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