Fact check: Does the Coalition always manage the economy better than Labor?
By Josh Gordon
April 12, 2022 — 7.18pm
“We always have lower interest rates. We always have lower unemployment rates. We always make sure that people have more of their taxes left in their pockets, they can keep more of what they earn.” Liberal campaign spokesperson Anne Ruston, ABC RN, April 11
For decades, the Liberal Party has traded on the idea that it is the party of lower interest rates, lower taxes, lower unemployment, tighter budgets and stronger economic growth. In this election, it is sticking to the well-tested formula perfected during the Howard era.
Economic management: Is Labor always worse, as the government claims?
In Scott Morrison’s first television ad, he said: “We are dealing with an economy which has more moving parts and more risks, but indeed many, many opportunities that we have to seize.”
Managing the economy is tricky, he is saying. One wrong move and it all blows up. Get it right, and it sets the country up for the future.
The Coalition’s campaign spokeswoman, Anne Ruston, was very specific this week: taxes, unemployment and interest rates are always lower. But is this true?
Are taxes lower under the Coalition?
The simplest way to compare the tax burden imposed by governments is the tax-to-GDP ratio, a measure of total federal taxes as a proportion of the economy (measured by gross domestic product).
On this measure, the title for the highest-taxing government goes to the Howard (Coalition) government, according to figures published by the federal Treasury.
Excluding the two financial years during which the government changed (1995-96 and 2007-08), the tax-to-GDP ratio averaged 23.4 per cent during the Howard era.
That was up from 21.8 per cent during the Hawke-Keating era (also excluding transitional years). It was also higher than the average of 20.8 per cent during the Rudd-Gillard-Rudd Labor years. So far under the current Coalition government, the tax-to-GDP ratio has averaged 22.3 per cent.
During the two full financial years that Gough Whitlam was in power, taxes averaged just 18.9 per cent, edging up to 20.7 per cent during the seven full financial years in which Malcolm Fraser was in power.
It is incorrect to suggest that taxes are always lower under Coalition governments. The two highest-taxing governments in the past half a century have both been Coalition governments.
(Whether this should be held up as a benchmark of economic success or otherwise is a different question entirely.)
Are interest rates lower?
The cost of borrowing was unambiguously the highest during the Hawke and Keating Labor years, famously hitting 17 per cent during the late 1980s, leading into the recession of the early 1990s.
Reserve Bank data shows that during this period, interest rates for owner-occupiers averaged 12.74 per cent, compared with 5.2 per cent under the current Coalition government.
During the Rudd-Gillard-Rudd era, interest rates averaged 7.23 per cent, almost identical to the average during the Howard years of 7.27 per cent.
What about unemployment?
The headline rate of unemployment tells us nothing about the number of hours people are working or the security or quality of their employment. Nevertheless, using the Australian Bureau of Statistics’ seasonally adjusted headline figures, monthly unemployment has averaged 5.7 per cent since the Coalition came to government in September 2013. This is slightly above the average of 5.1 per cent that prevailed during the Rudd-Gillard-Rudd years.
It is, however, below the Howard-era average of 6.3 per cent, and the Hawke-Keating era average of 8.7 per cent.
Whether all of this suggests the Coalition is a better economic manager than Labor is subjective. In recent decades, taxes and unemployment have been lower under Labor governments, but not interest rates.
There are, of course, plenty of other potentially more important measures of economic success, such as growth in real wages, national income per capita and productivity.
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More importantly, economic management is not a simple question of averages. It is about how governments respond to what economists might call exogenous shocks – events beyond their control – such as the global financial crisis, the pandemic, fires and floods.
Good economic management is in the eye of the beholder. The only thing that’s clear is that the Coalition cannot unambiguously claim the title.
Jacqueline Maley cuts through the noise of the federal election campaign with news, views and expert analysis. Sign up to our Australia Votes 2022 newsletter here.
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