Macroeconomic Policy for Australia in the 1990s

Abstract

The size of the deficit has little if any significance as an indicator of short-run macroeconomic policy. Government expenditure should be determined by longer term aspirations. Taxation (and other revenue measures) must be used, along with monetary policy, for short-term economic management, but whether revenue should be at a level that results in a deficit or not depends on many things including the composition of government expenditure and the state of the economy. At present, our economy requires a brake on total consumption expenditure and this may require a rise in taxation levels despite the high current level of unemployment. A high rate of capital accumulation is essential to change the structure of production and to increase output and productivity, but the brake on consumption must be eventually relaxed. Without an expectation of healthy consumption growth there will not be an ongoing high rate of accumulation in the private sector.