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SUMMARY

The global financial crisis (GFC) has focused attention on public debt. Various western governments have re-adopted Keynesian-style deficit budgeting as a means to prevent a loss of confidence in the private sector and so underpin recovery. In Australia, the national government moved in 2008-09 from a position of budget surplus to budget deficit. [1 and 3]

Despite a re-adoption in recent years of deficit financing in some Australian jurisdictions, as a percentage of gross domestic product budget deficits (and general government sector net debt) remain low. [3-10]

In response to the 1980s and 1990s world recessions, the Australian federal and state governments all consolidated the position of their public finances: particularly through various forms of fiscal responsibility legislation. [3-9]

NSW has adopted debt elimination legislation, as well as fiscal responsibility legislation – the Government Debt Elimination Act 1995 and the Fiscal Responsibility Act 2005 respectively. [4 and 10]

A note to the Fiscal Responsibility Act 2005 explains that fiscal sustainability will vary depending on:

the strength and outlook for the economy, the structure of expenditure and revenue of the budget, the outlook for the State’s credit rating, demographic and social trends that will affect the budget, and the nature of financial risks faced by the Government at any

given

time.[10]

Some of the factors impacting on the budget are internal in nature, including requirements for infrastructure development; others are external to the jurisdiction, with international developments influencing the capacity of governments to raise revenue. [10]

Concerns have been raised about the position of NSW finances in the longer term – particularly with regard to the state’s rate of growth against that of the mineral-rich states. [10]

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