Federal Election 2016 Fact check: Is government spending today higher than it was in the GFC?

The claim

"Spending is higher as a proportion of GDP today than it was under the global financial crisis — higher today," Labor frontbencher Anthony Albanese told FIVEaa radio on May 25, 2016.

Is he correct? ABC Fact Check investigates.

The verdict

Mr Albanese's claim is incorrect.

Budget figures show the Labor government spent 25.1 per cent of GDP in 2008-09 and 26 per cent in 2009-10, the two years affected by the GFC.

The budget estimates the Coalition Government will spend 25.8 per cent of GDP this financial year.

As spending peaked at 26 per cent during the GFC, Mr Albanese cannot say that current spending is higher.

When was the GFC?

Jakob Madsen, a Professor of Economics at Monash University, told Fact Check the GFC was "triggered by the strong fall in stock prices" in September 2008 and "goes through all the years from 2009 to 2010, maybe creeping into 2011".

He said Australia's budget was "really affected" by the GFC in 2008-09 and 2009-10 as the then Labor government increased spending through stimulus packages to prevent a recession.

 

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, said government spending "didn't really ramp up until after" September 2008.

"The stimulus programs were announced late 2008, early 2009, and they really hit in a big way as we went through 2009 and that affected the 2009-10 financial year, so in that sense, the stimulus program that related to the financial crisis was across those two financial years; 2008-09 and particularly 2009-10. For example, there was a school hall building program that really hit its peak in 2009-10, not 2008-09."

Glenn Otto, an Associate Professor of Economics at the University of New South Wales, said: "For Australia, in the December quarter 2008 is when we had a decline in the level of GDP."

"The increase in [government] expenditure as a share of GDP tended to occur after that sort of negative GDP shock," he said, adding that increased spending in 2008-09 and 2009-10 reflected the stimulus packages rolled out in response to the GFC.

Fact Check therefore considers the 2008-09 and 2009-10 financial years to comprise the period "under the GFC".

The data

Fact Check contacted Labor campaign headquarters to ask for the basis of Mr Albanese's claim, but no response was received.

Professor Madsen, Dr Oliver and Associate Professor Otto referred Fact Check to figures on government "payments" as a percentage of GDP published in Budget Paper No. 1, in a section on historical Australian government data.

It contains actual figures on government payments as a percentage of GDP until 2014-15, estimated figures for 2015-16 to 2017-18, and projected figures for 2018-19 and 2019-20.

Associate Professor Otto said the budget figure for payments includes government spending on goods and services, interest payments on government debt, and transfer payments such as pensions and unemployment benefits.

Fact Check has graphed the data below from 2000-01 to 2019-20.

The graph shows the government spent 23.1 per cent of GDP in 2007-08.

This figure rose to 25.1 per cent in 2008-09, as the government began pushing money into the economy in an attempt to prevent a recession.

Spending as a percentage of GDP reached 26 per cent in 2009-10, as the stimulus program continued.

The figure dropped to 24.5 per cent in 2010-11, then rose slightly to 24.9 per cent in 2011-12 and fell to 24.1 per cent the following year.

Spending jumped to 25.6 per cent in 2013-14 and 2014-15.

The budget estimates spending at 25.8 per cent for 2015-16 and to remain steady next financial year.

Spending as a percentage of GDP is projected to fall over the forward estimates.

These numbers are backed up by the Pre-election Economic and Fiscal Outlook, a non-partisan fiscal document produced by the Treasury and the Department of Finance.

What the experts say

Dr Oliver told Fact Check Mr Albanese's claim is "true in a technical sense if you define the financial crisis as being around 2008-09 and in terms of the impact on share markets and financial markets that's when it was".

"But to me that would be a distortion of the facts because the higher level in 2009-10, which was higher than now, was a direct result of the then government stimulus program, which was in response to the global financial crisis," he said.

"In meaningful terms [the claim is] false, it's distorting reality."

Professor Madsen said the figures show spending as a percentage of GDP "is about the same [today] as it was during the GFC - not more, not less".

Associate Professor Otto had a similar view, telling Fact Check figures on spending as a percentage of GDP for 2009-10 and 2016-17 "are of a similar order of magnitude".

Sources

Source: ABC News

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