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The Evolution of Fiscal Policy in Australia

Author

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  • David Gruen
  • Amanda Sayegh

Abstract

This paper examines the evolution of Australian fiscal policy and the fiscal policy framework over the past quartercentury. Following the early 1980s recession, a sustained fiscal consolidation saw the general government budget balance (for all levels of government) move from a deficit of 3½ per cent of GDP in 1983/4 to a surplus of 1¾ per cent 5 years later in 1988/9. A severe recession in the early 1990s interrupted this process, and the budget returned to sizeable deficits which peaked at 4¾ per cent of GDP in 1992/3. The second half of the 1990s saw a repeat of the experience a decade earlier, with the budget returning to surplus in 1997/8. In contrast to the 1980s experience, however, the general government sector (for all levels of government) has recorded surpluses for the subsequent 8 years to the present. The paper outlines Australia's macroeconomic experience over this time and argues that there have been two significant medium-term factors motivating the extended periods of fiscal consolidation. The first factor, relevant since the mid-1980s, has been the large Australian current-account deficits since that time, and the associated build-up of net foreign liabilities. The second factor, which entered the public debate more recently, is a desire to provide fiscal policy flexibility to respond to the ageing of the population and the projected rising public cost of health services--both influences that are likely to be of increasing importance over the next generation or so. The paper discusses the introduction and evolution of Australia's medium-term fiscal framework which has been put in place to respond to these challenges. Copyright 2005, Oxford University Press.

Suggested Citation

  • David Gruen & Amanda Sayegh, 2005. "The Evolution of Fiscal Policy in Australia," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 21(4), pages 618-635, Winter.
  • Handle: RePEc:oup:oxford:v:21:y:2005:i:4:p:618-635
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    References listed on IDEAS

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    1. Makin, A.J., 1988. "Targeting Australia’s Current Account: A New Mercantilism?," Economic Analysis and Policy, Elsevier, vol. 18(2), pages 199-212.
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    9. David Gruen & Matthew Garbutt, 2004. "The long term fiscal implications of raising Australian labour force participation or productivity growth," Treasury Working Papers 2004-01, The Treasury, Australian Government, revised Apr 2004.
    10. Productivity Commission, 2005. "Economic Implications of an Ageing Australia," Research Reports, Productivity Commission, Government of Australia, number 16.
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    Cited by:

    1. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    2. Phil Garton, 2007. "Comparing the net foreign liability dynamics of Australia and the United States," Economic Roundup, The Treasury, Australian Government, issue 4, pages 101-117, December.
    3. Hilde Christiane Bj�rnland & Roberto Casarin & Marco Lorusso & Francesco Ravazzolo, 2020. "Oil and Fiscal Policy Regimes," Working Papers No 11/2020, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
      • Hilde C. Bjørnland & Roberto Casarin & Marco Lorusso & Francesco Ravazzolo, 2021. "Oil and fiscal policy regimes," CAMA Working Papers 2021-10, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    4. Phil Garton & Matt Sedgwick & Siddharth Shirodkar, 2010. "Australia’s current account deficit in a global imbalances context," Economic Roundup, The Treasury, Australian Government, issue 1, pages 29-50, April.
    5. Eric M. Leeper, 2009. "Anchoring fiscal expectations," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 17-42, September.
    6. Davis, Nicholas & Bisman, Jayne E., 2015. "Annual reporting by an Australian government department: A critical longitudinal study of accounting and organisational change," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 27(C), pages 129-143.
    7. Neil Dias Karunaratne, 2008. "The Polemics and Empirics of the Sustainability of Australia's Current Account Deficit - Revisited," Discussion Papers Series 364, School of Economics, University of Queensland, Australia.
    8. Christopher Allsopp & David Vines, 2005. "The Macroeconomic Role of Fiscal Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 21(4), pages 485-508, Winter.
    9. Gulasekaran Rajaguru & Safdar Ullah Khan & Habib-Ur Rahman, 2021. "Analysis of Australia’s Fiscal Vulnerability to Crisis," JRFM, MDPI, vol. 14(7), pages 1-13, June.
    10. Mr. Craig Beaumont & Li Cui, 2007. "Conquering Fear of Floating: Australia's Successful Adaptation to a Flexible Exchange Rate," IMF Policy Discussion Papers 2007/002, International Monetary Fund.
    11. Tony McDonald & Yong Hong Yan & Blake Ford & David Stephan, 2010. "Estimating the structural budget balance of the Australian Government," Economic Roundup, The Treasury, Australian Government, issue 3, pages 51-79, October.
    12. Rochelle Belkar & Lynne Cockerell & Christopher Kent, 2008. "Current Account Deficits: Tha Australian Debate," Central Banking, Analysis, and Economic Policies Book Series, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt- (ed.),Current Account and External Financing, edition 1, volume 12, chapter 13, pages 491-535, Central Bank of Chile.
    13. Jonathan Kearns & Philip Lowe, 2011. "Australia's Prosperous 2000s: Housing and the Mining Boom," RBA Annual Conference Volume (Discontinued), in: Hugo Gerard & Jonathan Kearns (ed.),The Australian Economy in the 2000s, Reserve Bank of Australia.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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