Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.

 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate


On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.


RSS 2.0

A way forward for sustainable government finances

By Paul Bailey - posted Thursday, 16 October 2014

Our parliamentary systems seem incapable of addressing the fundamental imbalances between government taxation and spending. Only a comprehensive bipartisan agreement between the major political parties on fiscal sustainability offers real hope for change.

Historically there has been a societal maxim that governments were accountable to voters for maintaining a reasonable balance between taxation and spending. Balanced budgets and fiscal conservatism were indicators not only of good government but of a sense of national well being and economic security.

There is plenty of evidence to suggest this maxim has been discarded by governments.


The United States has become almost ungovernable amongst political and societal divisions about fiscal policy. Many countries in Western Europe have expanded their welfare states beyond their long term affordability. Both the US and many European countries have built massive public debt levels over recent decades for which future generations will be accountable.

After cumulative federal budget deficits from 2008-2014 amounting to $250 billion or 13% of total receipts, the Abbot Government's budget strategy of delivering a solid improvement in 2014-15 looks doomed to fail. A hostile parliament, the failure to sell a tough message, and slowing tax revenues are all playing a part in the expected shortfall. It bodes ill for the restoration of fiscal sustainability. Under the existing political and economic landscape large federal budget deficits and more debt are the likely outcomes. It seems apparent we are on the same long, slippery slope with Western Europe and the United States, nonetheless some years behind. Surely these are not the outcomes that a well functioning political system working for the long term betterment of society should deliver.

Why is it that so many liberal democracies, including our own, have allowed public finances to fall into such disrepair? At one level the answer is quite straightforward. The availability of plentiful and cheap credit to sovereign nations allowed politicians to expand public services without raising taxes. At a deeper level the limits of liberal democratic systems have now been exposed by weaker economic growth and political parties divided along ideological lines. Reasoned political debate and policy formulation has given way to populist politics and narrow vested interests.

The economic success of the last sixty years has made our governments and society complacent. We assumed unending strong economic growth would fund unending growth in government services and benefits. Now the chickens are coming home to roost. Economic growth in Australia and the West is slowing, perhaps permanently. Productivity growth is weak. The future costs of supporting an ageing population will weigh increasingly heavy on public finances.

Australia faces real challenges and we need our governments to be in strong fiscal positions to respond to future external shocks and structural changes to our society.

On what moral basis do elected politicians have the authority to commit current and future taxpayers of this country to the levels of existing and projected public debt? Our children, our young people, and future generations will not thank this generation for the fiscal mess we are creating, which if not reversed could adversely affect living standards in Australia for decades.


Restoring and maintaining fiscal responsibility cannot be achieved by the government of the day alone. In a liberal democracy, government policy cannot move far beyond mainstream public opinion, unless it wishes to commit political suicide. And this opinion, as always, is balanced to short-term self interest. Petty and partisan political debates do little to genuinely inform the public or address the fundamental question of fiscal sustainability. Many voters and interest groups support change, but not if it negatively affects them.

It is time for party politics to be set aside. We need no less than a fiscal pact between the major political parties to restore and maintain the budget viability of government at federal and state levels. A bipartisan approach addressing spending and tax reform offers the best hope for the baby boomer generation to pass on to our children sound and sustainable government finances.

The fiscal pact, supported by legislation, should include a structure which ensures that government debt is only incurred for infrastructure spending which delivers productivity and income growth, assessed by an independent body. Recurrent spending would be financed only by taxation revenues, and there should be binding commitments on spending growth and balanced budgets. A genuine process of taxation reform is necessary to provide sustainable government revenues.

In this year of Australia's G20 leadership, our political leaders have an opportunity to provide an example to other democracies by rejecting populist and ideological politics and coming together on this most critical role of government.

  1. Pages:
  2. Page 1
  3. All

Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

13 posts so far.

Share this:
reddit this reddit thisbookmark with Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Paul Bailey is the author of An Affordable Future: Challenges Facing Australians and Their Governments.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 13 comments
Print Printable version
Subscribe Subscribe
Email Email a friend

About Us Search Discuss Feedback Legals Privacy