I spent an enjoyable week visiting the Centre for Independent Studies in Sydney, and while there I was roped into drafting a short post for their regular Friday Ideas email. My post was on a recent conference paper by Griffith Economics Professor Tony Makin, my ESA Qld management committee colleague Julian Pearce, and Griffith econometrician Shyama Ratnasiri on the optimal size of government in Australia:
Here’s an extract from the post:
Prior to the Whitlam government of 1972-75, total Commonwealth, state and territory government spending in Australia was around 25% of GDP. In the four decades since the Whitlam government, it has been around 35%.
There is no question it would be good for the economy and taxpayers to reduce this burden.
The CIS has previously set a realistic target of reducing government spending to 30% of GDP, as part of its TARGET30 campaign. A new economic research paper presented at the recent 2018 Conference of Economists provides fresh support for this objective.
In The Optimal Size of Government in Australia, Makin, Pearce and Ratnasiri estimated the optimal size of government in Australia is around 31%. This represents the level that maximises economic growth.
The 2018 Australian Conference of Economists paper by Makin and co-authors (still to be peer reviewed and containing only preliminary results I should note) can be downloaded at this link:
Note that local government spending (which I forgot to mention in my summary) is included in the figures referred to above.