The main aim of the Government’s economic strategy seems to be achieving a budget surplus and so reducing government debt. Generally, a budget surplus produces an equal reduction in net government debt. The purpose of this paper is to question the arguments put in favour of the strategy and point to some of the consequences of the surplus strategy.
- By mid-2020, Australian government debt will be only 19.5 per cent of GDP. This figure is actually very low compared with Australia’s own history and well below the levels currently experienced in other economies, where debt ratios tend to be 50 per cent or more.
- Surpluses generally have contractionary effects on the economy. With Australia’s economy already sluggish, this means the Government should be looking to stimulate the economy through spending on public services.
- With interest rates so low in Australia, economic growth will see debt decrease as a share of GDP, so there is no urgency in paying off Government debt.