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2005-04: The evolution of fiscal policy in Australia

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Authors: David Gruen and Amanda Sayegh

This paper examines the evolution of Australian fiscal policy and the fiscal policy framework over the past quarter century. Following the early 1980s recession, a sustained fiscal consolidation saw the general government budget balance (for all levels of government) move from a deficit of 3½ per cent of GDP in 1983 84 to a surplus of 1¾ per cent five years later in 1988 89. A severe recession in the early 1990s interrupted this process, and the budget returned to sizeable deficits which peaked at 4¾ per cent of GDP in 1992 93. The second half of the 1990s saw a repeat of the experience a decade earlier, with the budget returning to surplus in 1997 98. In contrast to the 1980s experience, however, the general government sector (for all levels of government) has recorded surpluses for the subsequent eight years to the present.