By guest contributor Ken Atchison, Managing Director, Atchison Consultants
Politicians may not consider that budget deficits are important, as it is not a headline matter for the electorate. However, poor public policy which includes persistent deficits will result in further deterioration of politicians’ standing in the community. Quality public policy is acknowledged by the community, even if this acknowledgement is sometimes hard to identify.
Why do budget deficits matter? Deficits arise when spending occurs today for the benefit of people today while the repayment becomes the responsibility of future generations. Deficits which arise through the stabilising feature of spending commitments in a recession are acceptable. Providing the economy is growing strongly and the population is growing, stress will be limited. However, after 27 years without a recession, Australian governments should be starting from a surplus, not a deficit.
There are two issues of substance arising from government budgets. The first is the rate of growth of spending versus taxation revenue. The second is the rate of growth of the deficit relative to the rate of growth in the economy.
Persistent deficits will mean increasing national debt. The consequence of increasing interest rates payable on this debt will lead to reduced discretionary spending. The government’s discretion for meeting policy priorities will be reduced materially.