- Money Morning Australia

Not So Austere After All


Written on 09 May 2012 by Kris Sayce

‘Did you see the French election results?’

‘What does this mean for Europe?’

‘The socialists are in charge. They’ll spend and spend and Europe will get into even more trouble.’

Those are just some of the comments fired at your editor over the past three days.

What was our reply? Simply this: Hollande or Sarkozy, socialist or non-socialist, it won’t make a difference.

The markets are worried a socialist president will go on a spending spree. That he’ll rack up more public debt, and blow out the budget deficit even more.

It would – they say – be the end of French and European austerity.

Well, let’s get something straight.

First, here’s the Macquarie Dictionary definition of austere:

‘Austere, adj. 1. Harsh in manner; stern in appearance; forbidding. 2. Severe in disciplining or restraining oneself; morally strict. 3. Grave; sober; serious. 4. Severely simple; without ornament…’

Now, think about this. The 2012 Index of Economic Freedom says that last year French government spending was 56.2% of French gross domestic product (GDP).

Put another way, for every euro spent in France, the government spends 56.2 cents.

So it’s not true to say the new socialist president will throw out austerity. The truth is that France was never austere under Sarkozy.

It was spend, spend and more spend.

And France isn’t alone. The Economist published this chart in 2010 using forecast figures for future years…

government spending chart

Source: Economist

We’ve placed dots where each government’s spending is in 2012 as a percent of GDP.

As you can see, in each case government spending is at least the same today as it was in 2009. (Remember, the shaded area shows forecasts made in 2009 and 2010.)

The fact is Governments only pretend to implement austerity. In reality, they’re spending more tax money and going further into debt.

Yesterday the Age headlined, ‘Swan’s song to be in the key of austerity.’

The story went on, ‘Wayne Swan will be hoping his austerity budget gets a better reception than the Greek budget did.’

Good old austere Australia.

Trouble is, as Alan Kohler points out over at Business Spectator, ‘According to Budget Paper No.2 – Budget Measures, ‘expense measures’ in this budget actually increase spending by $201.2 million.’

And based on the budget estimates printed in today’s Australian Financial Review (AFR), the 2012-13 budget expenditure will be $376.3 billion. That’s $2.6 billion more than the estimate for this year.

And $30.2bn more than the government spent in 2010-2011.

Not so austere after all.

Cheers.
Kris.

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