Fiscal rules

Readers will be aware that Australia is facing huge deficits, despite the promise of the previous Government to get into surplus.

As a response to this, the Centre for Independent Studies has proposed some fiscal rules to bind future Governments.

They are:

1. require the federal fiscal balance to be maintained within a range of +2% to -2% of GDP on both an actual and forecast basis
2. limit the net debt to GDP ratio to 10%
3. cap the federal revenue and expenditure shares of GDP to 25%
4. capping real growth in federal spending at 2% per annum

Fiscal rules are not new for Australia. The Labor Hawke/Keating Government set rules being:

1. Not to raise tax revenue as a share of GDP
2. Not to raise government expenditure as a share of GDP
3. To reduce the budget deficit in absolute terms and relative to GDP

Anyway what I like most of all is their mechanism to encourage Governments to keep to the fiscal limits or rules. They propose:

This would involve cutting federal politicians’ overall remuneration by 1% for every percentage point breach of each fiscal rule for the duration of the breach.

Now that appeals!

NB: This post also appears on my personal blog kiwiblog.co.nz. Please feel free to comment on the post there.