A deficit debate that's all out of whack
By Steve Keen
I interrupt my series on the instability of capitalism for a special report on the serious problem of Australia’s budget deficit. As everyone knows, the world will end tomorrow unless Australia’s government plugs its $12 billion 'budget black hole'.
And I have proof! After all, we have 40 years of data showing the ratio of the budget deficit (and sometimes surplus) to GDP. Let's see how the current deficit compares to other years since 1975. And look, it's one of the worst ever!
Figure 1: Budget position as percent of GDP since 1975
Okay, now that I've done my bit for hysteria, let's take another look at that same data. It covers an almost 40-year history of the Australian economy, mixed with a 40-year history of the bluster of Australian politicians, with each side praising its budget management skills and rubbishing those of its opponents.
What if the truth, as opposed to the bluster, is that the economy controls the politicians far more than they control the economy – despite their competitive ‘my surplus is bigger than your surplus’ rhetoric?
After all, the revenue side of the government’s balance sheet reflects current taxes as applied to current incomes, and the ups and downs of the latter act with far more speed than the government changes gears (let alone drivers). So revenue is largely out of government control.
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