30 January 2014
OTHER states should try to emulate Western Australia, the nation’s most free state and most likely to generate prosperity, says an unprecedented analysis that ranks the six states based on the scope and size of government.
The 2014 Economics Freedom Index, which contrasts the states based on government spending, welfare dependency tax, debt and regulatory burden, puts NSW second and Tasmania last.
“Western Australia is the relatively freest jurisdiction in Australia based on its markedly lower government spending and dependency rates,” the report says, using statistics to show states with higher indices had the highest growth rates per capita.
“Politicians in every state should conduct economic reforms that cut the size of government, deregulate the economy, and reduce the extent of personal dependency upon government,” said report author Julie Novak, a research fellow at the Institute of Public Affairs.
Using data from 2011 (the most recent year for which income tax burden can be distributed by state), the states were assigned an index value between 0 and 10; WA received 8.25, NSW 5.6, and Tasmania 3.57.
“Low rates of legislation enactment and taxes-debt represented positive attributes of Tasmania’s performance but high rates of government dependency and public sector spending have weighed down its ability to provide an economically free environment to work and invest,” it says.
Queensland, second last, had a relatively low tax and debt burden, and smaller welfare dependency but had highest rate of passing legislation of all states (suggestive of regulatory activism by policymakers).
“Some statistical analysis showed a 10 per cent increase in the index was associated with a 0.3 percentage point increase in the rate of economic growth per person holding constant other factors like private investment, school retention rates and the unemployment rate.”
Ms Novak said individual states had limited ability beyond privatisation of remaining state owned assets (such as NSW and Queensland electricity distributors) to influence the extent of government in their own jurisdiction due to the looming presence of the federal government in Australian policy.
“The Abbott government’s red tape repeal and de-regulatory agendas, if implemented and genuine, would represent a rising economic freedom tide lifting all state boats to new economic opportunities,” she said.
“From international freedom indexes, produced by a Canadian think tank the Fraser Institute, that Australia’s relative economic freedom has declined in recent years.”
A state’s index was reduced according to the number of pages of legislation its parliament passed, the volume of government consumption and investment spending and the level of welfare dependency.
“The relative rankings of the states on the economic freedom index illustrate significant variations in the discipline of politicians and bureaucrats around the country to abstain from economic activities,” the report says.
The IPA plans to update the index every two years.
Courtesy of the Australian