New research by the Australia Institute shows the Government’s objective of achieving a budget surplus ignores the consequences of such an economic strategy—leaving Australian taxpayers to bear the burden of less government services, despite paying their taxes.

The report reveals that the present Government commitment to return to a surplus of at least one per cent of GDP can actually be seen as a commitment to tax the average taxpayer $1,700 more than is necessary to match the value of government services.  

Key Points:

• 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.

“For the moment the summer bushfires have trumped the Government’s surplus objective, as should be the case – the danger is that a surplus target will be rehabilitated once the immediate crises have passed,” said Dr. Richard Denniss, Chief Economist at The Australia Institute.

“The notion that a surplus is always preferable has been accepted uncritically for too long – if the Government is running a surplus that simply means the Government is withdrawing more money from the economy through taxation than it is reinjecting through its spending.

“The Government’s obsession with generating a budget surplus will do the Australian people more harm than good. In the meantime, the Government is not buying back its debt but intends using surpluses to purchase financial assets from the private sector as is shown in the budget papers. 

“The concept of good ‘economic management’ in Australia is broken. Surplus thinking, primarily the confusion between private profit and a Government surplus, is a symptom of private-sector principles being applied inappropriately to the public sector.”

The full report: The Budget Surplus Objective by David Richardson, Senior Research Fellow at The Australia Institute, is available here.