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).