National and State Fiscal Rules in Australia: An Outline and Critical Analysis

Abstract

Robinson notes that since the late 1980s deficits and public debt have been the major preoccupation of Australian fiscal policy. There was a widespread public perception that a number of States, and subsequently the national government, were experiencing debt crises. As a reaction, in the 1990s, most federal governments adopted explicit fiscal rules requiring balanced cash budgets. Governments aimed at reducing debt and usually targeted structural cash surpluses. At a later stage, some governments introduced accrual accounting which distinguishes between consumption and investment. Robinson argues that the golden rule can best be expressed as a rule requiring the accrual operating balance (i.e. the gap between revenues and consumption including capital amortisation) to average zero over the business cycle. He notes that this result may represent the best practicable approximation of the intergenerational equity principle: each time period should pay for itself. The net worth of the public sector would remain constant. While some States adopted the golden rule, the federal government went for a zero “fiscal balance” (i.e., the operating balance minus net non-financial investment) over the cycle. Net financial worth would remain constant in nominal terms. This approach is tighter than that required for fiscal sustainability.