Fiscal Consolidation and Australia's Public Debt
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Australia has experienced one of the fastest growing public debt levels in the world post‐Global Financial Crisis due to a series of large federal budget deficits driven by high government spending. In this paper we examine the balance sheet implications of this escalating public debt, before proposing some macro‐fiscal objectives for determining its sustainable level. These objectives are to (i) restore the federal government's solvency; (ii) eliminate foreign public debt; and (iii) achieve budgetary balance over the business cycle. Empirically, we first examine how much fiscal consolidation is required for debt stabilisation at current levels, before considering what sized budget balances are needed to achieve the target debt to GDP ratios consistent with the proposed objectives. The results show that no target debt to GDP level consistent with the optimal levels will be met on current fiscal settings in the medium term. This implies significantly greater fiscal consolidation is required to minimise future fiscal risk.
Australian Journal of Public Administration
© 2016 National Council of the Institute of Public Administration Australia. This is the peer reviewed version of the following article: Fiscal Consolidation and Australia's Public Debt, Australian Journal of Public Administration, Volume 75, Issue 4, Pages 424-440, 2016, which has been published in final form at https://doi.org/10.1111/1467-8500.12214. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving (http://olabout.wiley.com/WileyCDA/Section/id-828039.html)
This publication has been entered into Griffith Research Online as an Advanced Online Version.
Economics not elsewhere classified