Products – The Centre for Independent Studies

Strengthening Australia’s Fiscal Institutions

Stephen Kirchner
12 December 2013 | T30.06
Strengthening Australia’s Fiscal Institutions

The deterioration in the federal government’s fiscal position reflects a failure to adhere to a rules-based framework for fiscal policy to guide spending and tax decisions.

Fiscal policy has been distracted by the pursuit of macroeconomic stabilisation objectives that are inconsistent with the institutional design of Australia’s overall macroeconomic policy framework.

An independent central bank pursuing an inflation target, combined with a floating exchange rate, renders the change in the budget balance as a share of GDP from one year to the next an irrelevance from a cyclical perspective.

The government’s spending and tax decisions still have important microeconomic and efficiency implications that in turn influence long-run economic growth outcomes.

A failure to balance the budget over time can be costly in terms of the burden of public debt interest and the need to increase future taxes in the absence of offsetting expenditure restraint.

The cost of public sector borrowing is not just the interest rate on outstanding government debt, but the efficiency cost of future tax increases needed to repay the debt.

Expectations for the future path for net debt can undermine confidence even if current levels of debt are low by international standards.

There is a growing international trend towards the adoption of independent fiscal institutions coupled with legislated fiscal policy rules.

Local and international experience shows that independent fiscal institutions and fiscal rules, both individually and in combination, can lead to improvements in budget outcomes.

Dr Stephen Kirchner is a Research Fellow at The Centre for Independent Studies, and Editor of POLICY magazine. He is also a Senior Fellow at The Fraser Institute.


Latest Publications

Fairer Paid Parental Leave
Matthew Taylor
07 July 2014 | T30.11

Australia spends just under $1.4 billion (2012–13) on statutory Paid Parental Leave (PPL) to provide more than 130,000 parents with up to 18 weeks of parental leave paid at the full-time minimum wage. The Abbott government proposes to pay primary carers at their pre-birth wages up to a cap of $100,000 for up to 26 weeks. This policy would dramatically…

Withholding Dividends: Better ways to make the public sector efficient
Alexander Philipatos
29 May 2014 | T30.10

As the commission of audit has uncovered, the government must make significant cuts to spending to get the budget back into surplus. In the quest to find savings, the government cannot ignore the public service. For almost 25 years the government has turned to the efficiency dividend to find budget savings and improve efficiency in the public service. But the…

School Funding on a Budget
Jennifer Buckingham
30 April 2014 | T30.09

Government expenditure on schools has more than doubled in real terms in the last 25 years, while student numbers have only grown by 18%. Funding for school education was 3.1% of GDP in 2012–13, and is projected to reach 3.4% by 2025 under current predictions of economic growth. Large increases in real per-student expenditure have not been accompanied by improved…

Submission to the National Commission of Audit
Alexander Philipatos, Jennifer Buckingham, Jeremy Sammut, Robert Carling, Simon Cowan, Stephen Kirchner, Trisha Jha
01 April 2014 | T30.08

The federal government’s Commission of Audit (CoA) was established in 2013 to review the performance and role of government. This publication is an edited version of the CIS submission to the CoA listing practical solutions aimed at cutting government expenditure. The government should adopt a dual approach to its review of spending. First, spending cuts can save the federal government…

States of Debt
Robert Carling
20 March 2014 | T30.07

While Commonwealth government debt has been the focus of attention recently, this report takes a broader view by bringing state debt into the picture. State debt, like that of the federal government, has also risen dramatically since 2007, when net debt was negative. In the six years to 2013, states added $70 billion to their general government net debt, to…