Medium Term Fiscal Policy Issues and Challenges in Australia
16 Pages Posted: 28 Jun 2012
Date Written: March 21, 2002
Abstract
Robinson presents an overview of fiscal policy objectives and challenges in Australia. He notes that from the mid-Eighties to the late Nineties fiscal policy basically reflected the need to lower the external current account deficit. Avoiding public sector dissaving was supposed to require the avoidance of (cash) budget deficits. The public sector was to refrain from drawing, other than temporarily during a recession, on private sector saving. The budget was to be balanced, on average, over the course of the economic cycle. In the second half of the Nineties, this policy view gradually changed. Fiscal sustainability became the key concern, in view of the potential threat of unsustainable fiscal policies to external balance and market confidence. However, the rule calling for a balanced-budget over the business cycle was not modified. Public debt is considered both a threat to fiscal sustainability and inconsistent with intergenerational equity. Robinson notes that no distinction is made between borrowing for capital purposes and borrowing for current purposes and that this may contribute to the capital spending drought in Australia. Taking into account asset sales, in recent years the federal government has recorded negative capital investment. Robinson finally notes the changes in the budget deficit concept. While in 1999 cash accounting was replaced by accrual accounting, in 2001 the government reverted again to a cash accounting concept of the budget balance.
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