Is Australia living beyond its means? > Check the facts

Who: “It [a budget surplus] matters because Australia doesn’t fund itself as a nation. We are running a current account deficit of around $50 billion every year, so we borrow from the rest of the world to fund our lifestyle and that is clearly not sustainable.” Shadow Treasurer Joe Hockey

The claim: The budget deficit is causing us to borrow unsustainably from overseas.

The facts: The graph below, plotting budget balance and current account deficit, shows that there is no simple link between government deficits and borrowing from overseas.

The finding: Australia’s lifestyle is not unsustainable at least in the sense meant here and moving to a budget surplus would not necessarily reduce foreign borrowing.

Discussion of evidence: It is apparent from the graph that there is little or no relationship between Australia’s budget balance and the current account deficit (CAD). To the extent that a budget surplus could be produced it would most likely not be associated with an improvement in Australia’s current account balance. This was evident during the period 1999 to 2008, shaded in grey, when the government ran budget surpluses and, if anything, the CAD increased. This means that despite a surplus under the Howard government the CAD remained very large but it was not regarded as a problem.