Australia’s expected budget surplus of $4 billion this year may be significant politically, but from an economic perspective, it’s not worth celebrating. What is significant is the absence of another big deficit, representing the passage of a year in which the government didn’t add to the existing public debt. This news suggests that expected deficits for the next few years will also be smaller than previously thought. The absence of a deficit this year will result in a smaller than expected annual interest bill and a smaller than expected addition to the debt, leading to an even smaller than expected addition to the following year’s interest bill. However, projections are based on assumptions, which are then mechanically multiplied out year after year. One assumption is that the economy and the budget will move in a straight line over the next five years, with nothing unexpected blowing us off course. The projections are based on mechanically projecting “existing policy,” so the targets set may or may not be achieved.
Source: smh.com.au
