Here’s Australia’s budget deficit compared to other OECD countries.
Its small. This has been pointed out by many commentators during the past few weeks.
But as J.P. Morgan explains in its Australian budget preview, it’s the recent deterioration that matters.
Global comparisons look good, but the rate of change since 2007 does not. From the note:
In fact, the 4.2% point deterioration in Australia’s budget balance to GDP ratio since 2007 shows Australia in the middle of the OECD “pack” in terms of rate of change. This is bad, given the extent of the fiscal slippage elsewhere, but not terrible.
Similarly, Australia’s public debt ratio to GDP has more than doubled since 2007, but is very low by global standards, at just 34% (chart). This ratio leaves Australia near the bottom of the global public debt league tables.
In the context of Australia’s superior economic growth performance since 2007, though, the fiscal slippage is less forgiveable.
Revenue has slumped since 2007, as this J.P. Morgan chart shows. At the same time, spending increased.
The Government is expected to reveal a range of tough measures when it hands its first budget down this evening. These are designed to eventually bring Australia back to surplus.
Critics have said this is unnecessary. If a huge deficit isn’t an emergency for a powerhouse such as the United States, why is it such a big deal here?
The simple explanation, per J.P. Morgan, is that things got bad really quickly.
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