Larvatus Prodeo

John Quiggin wrote an interesting op/ed in the Fin Review today, which I imagine will eventually surface on his blog.

Quiggin picked up on recent remarks by Lindsay Tanner about discipline in the budget process. “Efficiency dividends” are much in the air at the moment, and Tanner appeared to be arguing that the cause of fiscal probity required a razor to be applied to public sector spending, with the goal of eventually returning the budget to surplus.

While Quiggin agreed that the latter goal was desirable, he suggested that “waste” wasn’t a high proportion of commonwealth spending, and argued that it made more sense to scale back the next round of tax cuts. The scheduled tax cuts are highly regressive, and give little or nothing to low and middle income earners. Nor is bracket creep a huge concern at the moment, and the rivers of revenue to be distributed have receded rapidly.

The government seems to be scaling back, or delaying a number of its commitments. While pension increases are apparently electorally sacrosanct, measures like maternity leave are on hold. Julia Gillard’s response to the Bradley review is a good example of this process at work. The government has accepted most of the review’s recommendations, but pushed out the implementation dates for those requiring large additional expenditure. The higher education sector is being told to hold its horses.

There’s something like a replay of the perennial tax cuts vs. services conundrum going on here. But it’s got an interesting new inflection when the quantum of money available is much reduced – focusing in on the economic benefits of spending against permanent tax increases for the upper middle and high end of the income spectrum. I’m inclined to think that there’s some residual defensiveness about the “economic conservative” label at work here. What, one might ask Kevin Rudd, would a social democrat do?