Image for The (austere) golden age of Peter Gutwein

First published June 19

“I believe,” said Peter Gutwein in his budget speech, “that Tasmania is on the cusp of a golden age.”

Public hospitals are in permanent crisis. School retention rates remain the shame of the nation. There are 16,500 Tasmanians unemployed but looking for work. Another 26,800 people are under-employed, needing more work than they have. The rate of labour under-utilisation – the key measure of labour market slack – stands at 16.7%. Homeless people face a winter sleeping rough at the showgrounds because there’s nowhere else to go.

Despite the crippling funding shortfalls for essential government services, Mr Gutwein has permanently reduced the state’s revenue base by decreasing payroll tax. Decent funding for hospitals, schools, child protection and housing is further away than ever.

Golden age? What on earth could he have meant?

The most plausible answer can be found in the discredited but persistent economic doctrine of “expansionary austerity”. If that sounds like a contradiction in terms, that’s because it is.

Austerity has been defined by the Australian economist John Quiggin as “tight control over public expenditure and measures to put government budgets into balance or surplus”.

Its accompanying rationale is the notion, central to neoliberal economics, that restrictions to the size and scope of the public sector (and therefore to government expenditure) will create room for the private sector to expand. The doctrine further holds that in all circumstances, or almost all, private companies are more efficient than government organisations and that if they are given preference, growth and prosperity will increase. The notion was perhaps best summed up by US President Ronald Reagan when he said that “government is not the solution to our problem; government is the problem”.

But the idea that the economy is a finite, zero-sum affair can be true only in rare circumstances. If all the factors of production – natural resources, capital and labour – are constrained, then contracting the public sector could reasonably be expected to result in an expanded private sector. In practice, only the supply of labour is crucial: the Tasmanian economy is not generally constrained by a lack of resources, and private investors can generally be found for projects likely to make money. But when there is full employment, it is trite to say that the same person cannot work simultaneously in two different areas.

In Tasmania, the labour market is far from being in a state of full employment. Although headline employment has improved from Lara Giddings’ austerity-induced recession of 2012-13, there remains a great deal of slack in the state’s labour market.

Economic growth can occur despite government austerity but not because of it.

The other key assumption of expansionary austerity – that the private sector necessarily does a better job than the public sector – cannot, even if it was true, be practically applied to the activities of Australian state governments. Most of their activities cannot adequately be replaced by the private sector because companies cannot simultaneously make a profit and provide these essential services to an adequate standard at a price most people can afford.

Private hospitals largely confine their activities to maternity and elective surgery. Those with emergency departments lose money on them: their EDs are expensive, inadequate and inefficient. All the rest is left to the public hospital next door. Private schools cost a great deal of money but provide similar academic results to public schools, when allowance is made for the background of students. Private prisons, where tried, have not proved a success. And the public is unprepared to countenance private companies running police and courts.

Most importantly, only a relatively few people can afford to pay for essential services like health and education. Unless the cost is borne by the entire economy, through taxation and government, our society would be one in which few of us would choose to live.

Austerity has a long history of consistent and disastrous failure. Under Herbert Hoover, it created the Great Depression. It was essential in propelling Germany and Japan into the Second World War. It was one of the suite of neoliberal theories that produced the Global Financial Crisis. It was responsible for almost a decade of lost growth in Europe after the GFC. And it is responsible right now for the evisceration of Britain’s National Health Service.

In Tasmania, it has meant the constant crises in public hospitals, the shortage of teachers in schools, the simultaneous under-funding and privatisation of child protection services and the under-staffing of prisons. In short, it provides a text-book example of how austerity fails to provide either adequate public services or a private sector capable of doing the job instead.

*Martyn Goddard is a public policy analyst based in Hobart.

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