Should governments run budget surpluses?

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Ask any politi­cian if gov­ern­ments should run sur­plus­es and the answer is like­ly to be a resound­ing yes, with the ratio­nale being that gov­ern­ments should “live with­in their means”.

Pre­cise­ly this rea­son was giv­en by the Aus­tralian Nation­al Com­mis­sion of Audit, which has been charged by the Abbott gov­ern­ment with the task of sug­gest­ing ways to rein in gov­ern­ment spend­ing. Its first report gave as the very first of its “Prin­ci­ples of good gov­ern­ment” the mantra that gov­ern­ments should:

Live with­in your means. All gov­ern­ment spend­ing should be assessed on the basis of its long-term cost and effec­tive­ness and the sus­tain­abil­i­ty of the nation’s long-term finances (Exec­u­tive Sum­ma­ry, Nation­al Com­mis­sion of Audit).

The anal­o­gy behind this prin­ci­ple is that gov­ern­ments are like com­pa­nies, and should there­fore have strong bal­ance sheets:

For gov­ern­ments, as with com­pa­nies, a strong bal­ance sheet is impor­tant (What should gov­ern­ments do?, Nation­al Com­mis­sion of Audit).

To achieve this strong bal­ance sheet, the Aus­tralian government’s goal is to achieve a sur­plus equiv­a­lent to 1 per cent of GDP with­in a decade and pre­sum­ably to main­tain it from then on…

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.