Wednesday, August 10, 2011

Drowning government in the bathtub

Cutting government expenditure is an article of faith on the right. Government is seen as inherently evil, wasteful, or simply "socialist" (i.e. benefiting someone other than the ultra-rich), and so they want to shrink or even eliminate it. The classic statement of this is US right-winger Grover Norquist's desire to "reduce [government] to the size where I can drag it into the bathroom and drown it in the bathtub".

In the US, right wingers have tried to achieve this with Taxpayer Bill of Rights legislation, which cap taxes and spending and require a referendum for any increase beyond inflation and population growth (which is normally less than the increase in GDP). In the state it has been implemented in - Colorado - it led to the degradation of public services, particularly the education system. And now, thanks to ACT, we're going to see such legislation here, in the form of the Spending Cap (People's Veto) Bill. The bill targets spending, not revenue, but it would have the same effect, preventing government from investing in public services when times are good, and imposing even harsher austerity when times are bad. Of course, the government could always get out of the cap for a year through a referendum - but because that referendum must happen in the same year, and will take between six to eight months to organise, in practice it will never happen. Instead, the first government to find the limits troublesome will repeal them (unless, of course, ACT is providing them with confidence and supply). Its a problem so obvious that even Treasury recognises it. In the bill's Regulatory Impact Statement [PDF] - which starts off reading like ACT party advocacy for the policy, rather than a serious policy assessment - they conclude:

The Treasury does not support imposing constraints on the ability of the government to set fiscal strategy via hard parameters in legislation. A legislated spending rule, which a government did not wish to be bound by, could lead to efforts to circumvent the rule – potentially favouring certain types of decisions (e.g. tax expenditures or regulatory changes) and raising the risk of unintended or perverse outcomes.

To be effective, the fiscal framework needs to be reasonably stable over time. This criterion would not be met if a legislated spending rule was likely to be overturned, shortly after its introduction, because it lacked widespread and enduring political support.

So, all Labour have to do to kill this is to say "we will repeal it immediately on taking office". And the quicker they do it, the better. We're not Americans, and we don't need this sort of radical Libertarian wackiness aimed at destroying our public services.