How does government debt affect social purpose organisations?
Federal government debt is on track to hit $1 trillion in coming years. As election sparring heats up, both major parties claim they’re best to manage it. But how does debt affect the social purpose sector? Neil Pharaoh explains.
By Neil Pharaoh
When the ALP won government in 2007, federal government debt was around $60 billion. When they finished office in 2013 having weathered the global economic recession of 2007-2009, debt was around $250 billion. The Liberal National Party took this $250 billion and more than doubled it prior to the pandemic, with debt sitting at around $550 billion pre-COVID 19. The pandemic added another $300 odd billion to this mix. The chart below illustrates the climbing debt level.
What does this all mean? There are three key takeaways for the social purpose sector:
There is actually plenty of government money washing around, despite constant claims “there isn’t enough money for social services” and “expect cuts”.
Political will moves spending decisions. If you are not participating in the process, you are missing out.
Look at spending decisions over time; achieving outcomes requires stamina and commitment, and that comes from great strategic thinking and planning.
Examining these more closely; there’s plenty of government money washing around – and Liberal governments in Australia have historically (believe it or not) been higher taxing than Labor governments. Labor governments historically average 21-22 per cent of GDP as tax revenue, Liberal governments 23-24 per cent of GDP as tax revenue. This means that one out of every four dollars of our GDP goes to the government. Total expenses in the last budget were around $600 billion.
When we dive into the detail around this spending, the priorities, focus, and investment decisions made by the government are clearer.
So when you hear “there isn’t enough money for social services” and “expect cuts” you need to think of this point differently – what they’re really saying is “you are not annoying enough, loud enough, or political enough to secure your priorities”.
Secondly, political will moves spending decisions. If you are not participating in the process, you are missing out. Political decisions dictate who gets money and how much. Those decisions occur across five key stakeholder groups – ministers (or shadows), elected MP’s, policy departments, central agencies, and the political parties themselves.
Work undertaken by Tanck shows that even small decisions often pass through over 100 people, before being announced across those five stakeholder groups. You need to maximise political will across all these stakeholder groups – and it needs to be sustained, structural and systemic.
When I first started using the term “government engagement” over a decade ago, it was considered new – people understood lobbying, campaigning and advocacy, and government relations – but “government engagement” was new. The reason we developed this term was because it speaks to the sustained nature required to build political will, and impact spending decisions.
A lobbyist can secure a quick flash in the fire, but sustained impact is what will shift the dial on funding and social issues.
Sustained impact takes me to my final point. If you look at spending decisions over time; achieving outcomes requires stamina and commitment, and that comes from great strategic thinking and planning.
You need to think of short-, medium-, and long-term funding horizons, and both the mid-year economic updates and budget and election cycles should be front and centre of your strategic planning, aspirations and strategy as a not for profit. If you are doing these things in isolation and not aligning external factors with internal ones, you won’t secure sustained impact.
Finally, we also need to consider the entire sector working together to change the narrative. “What narrative” do you ask? That Australia is “high taxing” – by OECD measures, Australia ranks 30th (out of 38) when it comes to “size of government taxation” relative to GDP of the economy.
Those bottom-taxing countries, near which Australia sits, are hardly an aspiration for us. They include Mexico, Columbia, Chile, Turkey, the USA and others. All of the “comparison” countries, as far as social services and economic outcomes, are larger taxing than Australia – Denmark, France, Belgium, Italy, Sweden, Spain, Israel, even Hungary, Estonia, Latvia, and both the UK and NZ take more tax, and thus spend more on social and other government services.
Sure, Australia has a heap of debt, and it is on track for $1 trillion thanks to our current federal government, but we are also low taxing – the result means a squeeze on social and economic supports, education and health, and clamping down expenditure going forward. You can either beat this by being more strategic, louder and more active individually for your organisation, or we (as a sector) must focus on our revenue initiatives in budgets as much as our expenditure.
While a $1 trillion deficit is huge – and it is accelerating – if our taxes in Australia (as a percent of GDP) equalled that of the OECD average, we would have had an additional $105 billion to spend in this year’s budget. This – give or take a few billion – would have resulted in close to a balanced budget, even with COVID impacts. And that is something to think about.
This article first appeared at Pro Bono Australia as part of Tanck's fortnightly column, Happenings on the Hill.
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