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No one holds the government to account on spending

Treasurer Jim Chalmers made budget sustainability one of the key pillars of the reform roundtable.

Concern that budget spending is on an unsustainable trend has been caused by rising government spending as a share of the economy. The spending has not been matched by an increase in tax revenue.

Government spending is forecast to increase further due to very high growth in National Disability Insurance Scheme (NDIS) spending, health and aged care, and a need for higher defence spending over time.

Budget, or fiscal, sustainability means that government debt as a share of the economy does not consistently increase. This is measured by the debt-to-gross domestic product (GDP) ratio.

Budget discipline improves the wellbeing of Australians by giving the government room to respond to economic shocks and ensures sustained provision of government services.

To keep government spending in check, stronger budget rules with numerical targets are needed. The treasurer’s roundtable is a good opportunity to consider such rules.

Why targets matter

Fiscal rules usually specify targets for ratios of government spending to GDP, and debt and deficits to GDP. All advanced economies have fiscal rules, as do 105 countries globally.

They were first used in Australia by then Treasurer Paul Keating in the 1985 "trilogy" commitments: that tax revenue to GDP would not increase; government expenditure to GDP would fall; and the size of the deficit would fall.

A legislative requirement for the government to specify fiscal targets was introduced by then treasurer Peter Costello in 1998 in the Charter of Budget Honesty.

Both Liberal and Labor governments since then have committed to several rules with numerical targets, such as spending to GDP, debt to GDP, or a commitment to balance the budget “over the (economic) cycle”.

The four budgets since October 2022 delivered by Chalmers have contained many general statements with good intentions, such as building fiscal buffers. But these are not targets that can be numerically tested and used to ensure the government keeps its promises.

The two numerically testable commitments in these four budgets are:

  1. “directing the majority of improvements in tax receipts to budget repair” (which has been met)
  2. “limiting growth in spending until gross debt as a share of GDP is on a downwards trajectory, while growth prospects are sound and unemployment is low” (which has not been met).

It’s time to test the treasurer’s claims

As the treasurer renews his focus on budget sustainability, now is the time to commit to precise rules that require the government to meet measurable targets and clear time frames (such as within the next three years) for:

  • spending to GDP
  • deficit and debt to GDP
  • and, desirably, a cap on tax revenue to GDP.

These rules can play an important role in helping Chalmers and Finance Minister Katy Gallagher to argue against new spending proposals from their cabinet colleagues.

Having fiscal rules in place can also help show a government’s resolve and credibility in the event of a crisis in financial markets. This happened following the bond market crisis in the United Kingdom in 2022.

For the opposition, committing to these rules can show its capacity as an economic manager. They may be required by independents as one of the conditions to work with a minority government.

The role of the Parliamentary Budget Office

As it currently stands, there is no organisation that systematically holds the government to account against any fiscal targets.

The Parliamentary Budget Office (PBO) provides independent and nonpartisan analysis of fiscal policy. But it does not assess compliance.

Its remit should be expanded to include assessing the government’s compliance with fiscal rules. This occurs for many similar organisations internationally. Overseas research suggests that well-designed PBOs and similar bodies improve compliance with fiscal rules, and thus improve budget outcomes.

A stronger PBO could also make policy recommendations. There are many other examples of Australian independent government entities that make recommendations or decide on economic policy – notably the Productivity Commission, the Reserve Bank of Australia and the Net Zero Economy Authority.

A policy remit for the PBO therefore has several precedents and would allow the office to become an advocate for sound fiscal policy, just as the Productivity Commission advocates for microeconomic efficiency.

Put simply, a fiscal watchdog with real teeth would assist the treasurer in meeting the goal of fiscal sustainability.The Conversation

 

Julian Pearce, Adjunct Lecturer in public finance, Griffith University and Ross Guest, Emeritus Professor of Economics (Griffith University) and Teaching Associate (University of Queensland), Griffith University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 

20 Comments
steve
October 06, 2025

Governments are hopelessly leading us into crippling debt for our children and grandchildren to deal with.
My SOLUTION is to legislate that the Govt saves a set % of Revenue actually collected each year into a Sovereign Future Fund.
The Govt requires people to save via at a legislated rate of 12% in order to save for our retirement.
I would legislate that the Govt is required to save at this same rate so it could retire future generations from taxes.
Within 30-50 years the Country would earn enough return on the Sovereign Future Fund to reduce/retire our grandchildren from paying the current crippling and increasing rates of tax.

Andrew Smith
October 06, 2025

What are the levels of debt and with whom are we comparing with?

One hopes this is not inspired by the US equivalent?

Further what is impact of ageing demographics exemplified by increasing old age dependency ratios ie. more non taxpaying retirees tugging on budgets vs fewer working age taxpayers (despite inclusion of international students and other temporaries into the estimated population).

Just a whisper of constraints on Medicare, pensions, or implementing a potential retiree tax will have anybody of the dominant boomer 'bomb' cohort having meltdowns....

Steven Jackson
October 06, 2025

G'day again Steve, more Green than Labor, how many new mine applications have been passed under the so called Green government Steve?
In regards your other points point to any developed economy besides Russia and China that would live up to your criticisms of our present government, I know of none but maybe you will surprise me.
The present situation is a result of neoliberal policies and the creation of a FIRE economy in place of our old manufacturing one, yes Labor may have started it back under Hawke/Keating but the Coalition sure ain't opposed to privatisation and don't forget who really increase the debt tremendously was Abbott to
Scomo governments.
Check the figures if you don't believe.
By the way the ALP is just Liberal lite particularly with shy reserved reticent Albo fearful of doing anything positive as the MSM would scold him after Shorten fell trying to change our tax base to make it more viable and equitable but the entitled lot shot that down in flame much to the country's detriment.

Dudley
October 06, 2025


"entitled lot shot that down in flame":

Class traitors with taxable incomes less than the tax-free threshold invested in dividend paying shares and receiving franking credit tax refunds instead of paying an extra 30% tax.

Wildcat
October 06, 2025

15 to 20 years ago the percentage of non market jobs (govt employees) were 22% of the employed population. It’s now 30% and has ramped under all govts but especially under Albo. Don’t see anymore nurses, police etc. All of them are bureaucrats which make ridiculous levels of red tape for the sector that actually produces the wealth of this country, the private sector. Further as others have said it crowds out the private sector both in jobs and other resources. They then increase the supply of cash to buy housing but only provide words to increase the supply of housing itself. Notably NSW councils are being strong armed by the state govt. This is another non productive ‘asset’ much like the bulk of the over paid and under worked bureaucrats.

As Winston Churchill said ‘taxing your way to prosperity is like standing in a bucket and trying to pick it up by the handle’. Or Margaret Thatcher said ‘the problem with socialism is eventually running out of other people’s money’.

NDIS GROWTH is going to be capped they ‘promise’ at 8%. This roughly 3 times real gdp growth. This is only a plan if you are planning for disaster.

Albo and his union hacks and lawyers are taking Australia precisely down this path, and we will run our money someday.

Just look at the masses of millionaires leaving the UK. Australia will be next unless this stupidity is stopped.

Bruce
October 05, 2025

The Labour Government's approach to spending is simple. 1. Increase spending on the many issues for which they claim it is necessary and have a mandate from the electorate 2. Act surprised when the tax income is not sufficient to cover the increases in spending 3. Claim they have no option but to raise taxes especially on the "wealthy". 4. Tout their credentials for balancing the budget 5. Go back to number 1.

Ruth from Brisbane
October 07, 2025

Bruce you forgot the step which precedes these: blaming the previous government for the deficit/debt situation when previous Coalition governments had to sell government owned assets to get us out of debt and therefore keep our AAA rating. Some are complaining about 'high' interest rates but don't seem to understand that we are one of the very few countries which have retained this rating but are on notice of losing it. If that happens (and I see no reason why it won't) we will find interest rates rising as capital must come from overseas (as some Australians don't save; they just spend and travel). Who will fund the disgraceful and growing debt VIC carries now? In addition QLD is alarmingly in debt, expected to fund Olympic Games which QLD cannot afford and will yield no profit for the state. The call is now resoundingly to tax 'the rich' more. Unfortunately growing an economy requires an increase in productivity (not a conference about it) as tax increases will simply see more capital leave the country, as have our entrepreneurs have already done and the death of what remains of small businesses.

mark
October 05, 2025

Mr Jackson misses the point by just labelling and obfuscating ideology. The left may not yet be trying to control means of production but they sure would like all doctors on salaries.

To win elections you must control the centre and spending/ bribing the population is what is being done.

Going into deficit to fund major infrastructure is sound but money is being thrown around like a drunken sailor vote buying and appealing to the masses.

Eventually it comes home to roost... we are still waiting for the $275 electricity refund promised in the last election.

Whenever a scheme is introduced it is rorted and exploited and costs multiples of the original planned cost.

What irks me most is the politicians who engineer all this are unlikely to be affected.....

Harry Lime
October 05, 2025

Yes, the scale and absolute amount of government spending is very import but so is value or effectiveness.
The returns from government spending seem to diminish rapidly. Plus there is a huge amount of waste and inefficiency.

No one is ever held to account.

Denis
October 03, 2025

It is so much easier for governments (of both persuasions) to spend as the benefit favours the 'here and now' and positively impacts a politician's chances for re-election. Budget rectitude is so much harder to sell as it means pain now for some other politician to take the credit in the future. Why would you bother. Can anyone remember how Joe Hockey's 2014 budget went down? Not so well as I recall. Sussan Ley has been making suggestions in relation to personal individual responsibility with less dependence upon government. Not sure just how far that idea will progress within a national framework where the public has been led to believe that most social problems can be solved with more government spending.

James
October 03, 2025

The States are racking up debt like theres no tomorrow. Its basically buying votes.

Cam
October 02, 2025

We used to hear at elections, 'where's the money coming from'. There was electoral pressure to manage finances. During the 2000's when we had huge surpluses, while the Liberal/National Government saved a decent chunk there were noisy calls to spend it and there were also some handouts, so faults on both sides. The GFC response under Labor blew the surplus, and by the time the Coalition were back in power in 2013 there were calls for the age of entitlement to end to fix the Budget. Tony Abbott's Budget had changes for pretty much every sector. Unfortunately it was too much in too many areas and everyone had a couple of things they didn't like, and measures didn't get legislated. The Coalition made some improvements though and had marketing cups etc ready for the first Budget surplus, and then covid hit. Personally I think if Scomo had won in 2022 that the Coalition would have returned to Budget discipline. I get that some of that is not doing things like extending child care (though family incomes above $500k seems too far). Labor winning though meant they could refer to the debt as the Liberals, which undermines the moral authority the Liberals have had for calling for Budget discipline.
I think we had an OK system. Labor would overspend but that included things like Medicare, etc. The Coalition would come in and make cuts, also some good and some not so good, but restore the Budget.
I think The Coalition's part has lost some strength, partly due to covid but partly as public sentiment is focused on wanting money for everything and Budget austerity isn't a vote winner.

Bruce
October 06, 2025

Perhaps those of us who pay taxes should have a bigger say in how the government of the day spends our money.
As Cam points out, populist policies that appeal to those who pay little or no tax are vote winners. They don’t care where the money is coming from.

Steve
October 02, 2025

Unfortunately to the average voter, they would glaze over when they read such economic wisdom (that they cannot directly relate to). ie you need to explain HOW this affects them at a direct level personally. Lots of people are receiving government services - ie the Aged Care sector is still a mess.

Murray
October 02, 2025

The great fiscal 'inconvenient truth' backed up by 'honesty' being absent from the socialist dictionary.
How many left-wing bureaucracies across the three levels of government in this country have ever lived within their means?
Don't hold your breath!

Kim
October 02, 2025

The South Australian Government is planning raising debt from present $28bn to $40bn over the next few year citing infrastructure projects necessary for population growth. I consider this irresponsible -putting more "on the slate" with no plans to retire or even reduce this debt. Former Treasurer Mullighan "retired" last month with acclaim from the Premier - both Malinauskas and Mullighan are responsible for spending beyond the State's means citing debt levels in other State as an excuse. Federal Labor is of the same ilk. Irresponsible. Leave for another Government to clean up the mess

Charles Wells
October 02, 2025

Thank your stars that Governments are the main entity keeping the economy afloat. If you would have relied on Private sector investments to grow the economy then we would have been in never ending recession since GFC of 2008 and that would have led to breakdown of society.

Steve
October 02, 2025

Not sure. Governments used to supply essential services and act to prime the economy in downturns - deficits were needed when economic activity was suffering. Now we have full employment and yet governments still want to run large deficits, and actively compete with the private sector for labour. No wonder the private sector is holding back. And lets not get started on the added costs from our broken energy system, new rules like working from home etc. Who would put any of their hard earned capital at risk with the socialists running the show. And the problem is one day, spending other peoples money runs out of gas!

Steven Jackson
October 03, 2025

Gday Steve, surely you jest about the socialists running the show.
It makes me wonder what your definition of socialism is as I know of no means of production or even infrastructure that is in the hands of the government let alone the communities hands. Even schools are half private along with health system as well, more goes to private health insurance than direct health services care of John Howard.
Maybe you are an American expat who experienced McCarthyism and the House of unAmerica activities and the reds under the bed period or who saw it from afar.
Not even the Whitlam government could be genuinely described as a socialist government though he was called far worse.
All governments in this country conform to the neoliberal doctrine and surely aren't within cooeeee of even Social Democracy let alone socialism.
In our present world it appears that the controlled economy is doing better than the pretend free market economies that the rules based order presided over which are now returning to a high tariff protected economy. So in the real world looking after the community is not such an onerous perspective after all and pays dividends in the long run though there is no free lunch.

Steve
October 05, 2025

G'day Steve Jackson. OK so we may not be meeting the textbook definition of socialism, I'll concede that. But the other point was that government is making investing private funds less and less attractive. Who would have thought 30 years ago that a Labor government would block jobs for miners (over a mythical bee)? A huge chunk of tax revenue comes from miners and exporters of gas/coal - something that makes Labor quite uncomfortable mainly because they are more Green than Labor these days, but at least they can sleep knowing the majors have said they won't invest any more capital in Australia as its too antagonistic to business. So the future revenue from these exports is uncertain at best. Their suicidal energy policies are making manufacturing a very poor investment (new aluminium smelter anyone?) so jobs will go in this sector if Bowens plans continue. Manufacturing needs two basics in energy - competitive costs and reliable supply. Only coal and gas are keeping things reliable (over 70% from coal/gas in the evenings when manufacturing is still running when we're all tucked up in bed). Bowen wants to dismantle that. So what is left? Education? Sydney Uni already has more foreign students than domestic. Or work for the government or in a field paid for by the government, on increasingly borrowed money. What are the plans to produce the wealth they are so great at wanting to redistribute? And that's the socialist part of the problem - socialists don't encourage wealth production, they just leach off it until its dead. So, kinda socialist. Just how will we pay for all those imported goodies like solar panels and electric cars or medicines when our exports shrivel up?

 

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