Source: Makin and Pearce (2016)
For instance, to restore Federal Government net worth within 10 years, budget surpluses would persistently have to run at 3.6% of GDP for 5 successive years, or 2% of GDP for 10 successive years.
To eliminate foreign public debt, primary budget surpluses would persistently have to run at 4.7 % of GDP for 5 years, or 2.6% for 10 years.
To balance the federal budget over the cycle, primary budget surpluses would persistently have to run at 4.1% of GDP for 5 years or 2.2% for 10 years, over twice the budget balance projected by Treasury on current budget settings.
In short, we find that substantially higher budget surpluses are needed to meet the specified public debt targets. Of concern is that no target debt to GDP level consistent with the optimal levels of public debt will be met into the foreseeable future under existing fiscal settings.
Makin, A. and Pearce, J. (2016) ‘Fiscal Consolidation and Australia’s Public Debt’ Australian Journal of Public Administration (forthcoming)
- Tony Makin is Professor of Economics and Director of the Griffith APEC Study Centre at Griffith University, and has previously served as an International Consultant Economist with the IMF Institute based in Singapore and as an economist in the federal departments of Finance, Foreign Affairs and Trade, The Treasury and Prime Minister and Cabinet.
- Julian Pearce is Chair of Queensland University of Technology’s Economics and Finance School Advisory Committee and a member of the Governing Committee of the Qld Business Leaders Hall of Fame. He has previously served as National Australia Bank’s Chief Economist and in the Federal Treasury.