Australia’s Fiscal Framework: Revisiting Options for a Fiscal Anchor

By Allan Dizioli, Philippe D Karam, Dirk V Muir, Siegfried Steinlein

December 22, 2017

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Allan Dizioli, Philippe D Karam, Dirk V Muir, and Siegfried Steinlein. Australia’s Fiscal Framework: Revisiting Options for a Fiscal Anchor, (USA: International Monetary Fund, 2017) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper revisits options for fiscal anchors in Australia against the backdrop of a medium-term budget balance anchor that has led to larger than expected upward drift in the net debt to GDP ratio since the end of the mining investment boom. The IMF’s G20MOD model is used to compare the budget balance anchor with a long-term debt anchor. Using model simulations evaluated against objective macro stabilization-debt control criteria under three likely scenarios for the Australian economy, the latter is found to perform at least as well as the former. The paper also considers the operationalization of a long-term debt anchor utilizing a combination of fiscal rules which includes expenditure restrictions and a flexible time horizon for convergence, aiming at encouraging countercyclical fiscal policy and minimizing the cost in terms of real GDP foregone in the medium term under fiscal consolidation.

Subject: Budget planning and preparation, Business cycles, Economic growth, Fiscal policy, Fiscal rules, Public debt, Public financial management (PFM)

Keywords: Budget constraint, Budget planning and preparation, Business cycles, Commonwealth government, Debt, Debt ratio, Debt target, Deficit target, Fiscal policy, Fiscal rules, General equilibrium models, Global, Government, Government budget constraint, Government dissaving, Government face, Government's goal, Long-term debt, Long-term government debt target, Net, Taxation, Territory treasury, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/286
Stock No:

WPIEA2017286
ISBN:

9781484335383
ISSN:

1018-5941

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