14/06/2026
Government Spending (consumption) share of GDP from Generl Government Income Account of the NAtional Accounts. I have adjusted for the 'pandemic spike'. This is all levels of government. It is 25% above the old 'normal' from the 30 year period from 1980s to 2015. There are a number of ways to fund this. Taxation is the obvious one. Inflation is also a strategy (although a dnagerous one). The costs of this spending are not just the taxation required to fund it. There is the opportunity cost of resources taken away from other uses, amplified in the new capacity constrained economy of the 2020s. These capacity constraints in their simplist form are labour shortages driven by demographich change. Immigration does not solve this problem (it helps). The only enduring solution that also gives us a chance of maintaining our living standards is the adoption of productivity inducing technology. Unlike Japan 20 years ago, we have the technology at hand. But taxing high productivity parts of the economy to fund low productivity parts comes with considerable long-term political, social and financial risks. These are not esoteric risk that may manifest at soem stage in the future. They are happening right now. Falling real incomes, social strains and the rise of the One Nation primary vote in polls are all linked in some way, shape or form to this large and persistent increase in the size of government, a structural change in the way Australia works.
