Briefing paper

Expenditure Review Committee 2008: a framework for decision making

14 Mar 2008

This briefing suggests a framework to assist the new Government's deliberations on the most appropriate settings for budget policy, given the current precarious stance of macroeconomic policy in Australia. For the first time in a decade fiscal policy settings underpinning the 2008-09 Budget should take the lead in of macroeconomic stabilisation, helping to restore strong and steady growth and price stability, whilst supporting national savings and the credibility and sustainability of budget settings. This contrasts with the situation in recent years where fiscal policy has contributed to creating bottlenecks in the economy by crowding out resource flows to the most productive sectors of the economy. Irresponsible budget policy and public administration has contributed to higher prices and higher interest rates.

A discretionary tightening is now long overdue to assist in dampening cost pressures along with a pursuit of fundamental microeconomic reforms in the most protected sectors of the economy. The fiscal tightening should be of the order of 2 per cent of GDP in 2008-09. This task requires immediate, decisive action on the part of government and the full support of the bureaucracy. Any delay will be measured in terms of higher prices and interest rates and lower growth over the next three years

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