Because Mr Rudd had to start pumping stimulus money into the economy to keep the country out of recession. His spending-to-GDP ratio increased again the next year, to But those numbers were minuscule compared to how much the Morrison Government has been spending.
That level of deficit spending is necessary to finance the JobKeeper and JobSeeker payments that so many Australians need desperately. Who would have known? Incomes for households and businesses are far more important than any budget surplus. One can't help thinking of Tony Abbott. The former prime minister spent a lot time telling voters that budget deficits were bad.
Looking back at that campaign speech, it begs the question: if the deficit spending in the GFC squandered our inheritance, how should we characterise what the Morrison Government's doing now? Perhaps we'll get some clarity on that point this week when Federal Parliament returns after a two-month break.
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Like "welfare payments". Take another concept. Consider a "budget deficit". Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 1 minute 2 seconds 1 m 2 s. Posted 23 Aug 23 Aug Sun 23 Aug at am. Why Australia's government debts and budget deficits are here to stay.
Why everything you've been told about debt and deficits could be wrong. Several of the large economies of Latin America, including Mexico and Brazil, ran large trade deficits and borrowed heavily from abroad in the s, but the inflow of financial capital did not boost productivity sufficiently, which meant that these countries faced enormous troubles repaying the money borrowed when economic conditions shifted during the s.
Similarly, it appears that a number of African nations that borrowed foreign funds in the s and s did not invest in productive economic assets. As a result, several of those countries later faced large interest payments, with no economic growth to show for the borrowed funds.
For most years of the nineteenth century, U. Yet the string of trade deficits did not hold back the economy at all; instead, the trade deficits contributed to the strong economic growth that gave the U. The U. Much of that foreign capital flowed into two areas of investment—railroads and public infrastructure like roads, water systems, and schools—which were important to helping the growth of the U. The effect of foreign investment capital on U. Nonetheless, the trade deficit and the accompanying investment funds from abroad were clearly a help, not a hindrance, to the U.
This scenario was raised at the start of the chapter. In the mids, a number of countries in East Asia—Thailand, Indonesia, Malaysia, and South Korea—ran large trade deficits and imported capital from abroad. However, in and many foreign investors became concerned about the health of these economies, and quickly pulled their money out of stock and bond markets, real estate, and banks.
The extremely rapid departure of that foreign capital staggered the banking systems and economies of these countries, plunging them into deep recession. We investigate and discuss the links between international capital flows, banks, and recession in The Impacts of Government Borrowing.
While a trade deficit is not always harmful, there is no guarantee that running a trade surplus will bring robust economic health. For example, Germany and Japan ran substantial trade surpluses for most of the last three decades. Regardless of their persistent trade surpluses, both countries have experienced occasional recessions and neither country has had especially robust annual growth in recent years. Watch this video on whether or not trade deficit is good for the economy.
Why does our huge net foreign debt rarely rate a mention these days? But also because, though our net foreign debt keeps growing in dollar terms, our economy is also growing — and hence, our ability to pay the interest on the debt.
Adding our net foreign assets to our net foreign debt gives our net foreign liabilities. Measured against the size of the economy nominal gross domestic product , our net foreign liabilities reached a peak of about 60 per cent in , but have since fallen to about 50 per cent.
Memo Scott and Josh: why surpluses aren't necessarily good, or deficits bad. Please try again later. The Sydney Morning Herald. October 12, — Government investment in infrastructure is already exceptionally high and private investment spending is constrained by the risk averse culture in many companies, he says.
Post-pandemic, McKibbin thinks there will be a recovery in investment, capital will flow in and Australia will move back towards current account deficit.
Although the government will be saving more as the budget deficit shrinks, this will be overridden by the private sector saving less and investing more, he says. Skip to navigation Skip to content Skip to footer Help using this website - Accessibility statement. John Kehoe Economics editor. Sep 10, — Save Log in or Subscribe to save article.
Expert coverage of Australia's public sector. Sign up to the Inside Government newsletter. Print article License article. Follow the topics, people and companies that matter to you. Find out more. Australian economy. He writes on economics, politics and business. He joined the Financial Review in from Treasury.
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