We’ve seen the effects of fiscal recklessness before,
writes Julie novak. And it didn’t work out well.
he past few months have style fiscal duo through the 1980s, some created a fiscal Frankenstein dependent
shown just how fragile more flamboyantly than others. on the sugar drip of public sector funds,
the perceived orthodoxy Eventually, however, the govern- only to be mortally wounded by a slow
of government financial ments were stung by how continuous growing and unreformed economy that
management has been. budget deficits and rampant public debt, couldn’t feed it quickly enough.
Seemingly gone are the days when largely of their own making, were eating Having to turn their backs on this
Australians could rely on their govern- through our scarce financial and eco- failed approach, governments started
ments to deliver budget surpluses with- nomic resources during the late 1980s making concerted efforts to reacquaint
out mortgaging the future through ris- and early 1990s. themselves with some of the basics of
ing public debts. If the latest budgets are A 1993 Victorian Commission of sound public finance.
anything to go by, federal and state tax- Audit report noted that Victoria got it- While there is some residual de-
payers can look forward to nothing but self into a parlous state where it was bor- bate around the edges as to what sound
deficits and debts stretching far beyond rowing not just to finance capital spend- public finance entails, it is neatly de-
the economic horizon. ing, but to meet interest payments and scribed by economists James Buchanan
To understand where we are today daily operating expenses. A other report and Richard Wagner in their 1977 book
it is often necessary to check back in for South Australia was scathing about Democracy in Deficit. They described it
the rear vision mirror of fiscal history. A how the State Bank financial disaster as being the twin principles of keeping
moment’s gaze into the reflection of the had wrecked over seven decades of pru- government budgets in balance, or mod-
past will show that, in many ways, we dent financial management. est surplus, and limiting public debt in
are risking a repeat of yesterday’s costly Reports in other jurisdictions told a peacetime.
mistakes. similar story of woe, with a 1988 NSW Managing a government’s books not
It would be a mistake to think that audit simply kicking off by stating that unlike those of a business or household
the deficit and debt cocktail is a new ‘New South Wales has been living be- became the new buzz phrase for gov-
phenomenon. Almost all Australian yond its means.’ The federal government ernments of both political persuasions.
governments indulged in this Keynesian had to wait its turn for a scathing inde- Most governments around the country
pendent fiscal commission report until undertook reforms to better align rev-
1996. enue inflows with costs by restructuring
Julie Novak is a Research Fellow at the Keynesian budget experimentation the public sector, putting budgets belat-
Institute of Public Affairs. by federal and state governments had edly in the black. Public debt was even-
42 IPA Review | August 2009 www.ipa.org.au
tually paid off by the proceeds of asset
sales or by recurrent budget surpluses. Just about every debt was almost like shooting fish in the