Thread: economics , budget , I need help

In simplest terms a budget surplus means you are taking in more than you are spending. You can achieve this without reducing debt which is the amount you owe. These are different things which are often confused.

Then there is the question of what kind and whose debt as others have alluded to.

After paying down debt from 1995 to 2007 the Australian government has been borrowing to what are historically high levels since then. Rising steadily from 10% to 40% of GDP over the last 10 years.

By international standards Australia even at this higher level had a low debt level.

For some easy to understand info try trading economics.com

Company tax collections are rising so they expect incoming to exceed outgoings.
Our government debt to GDP ratio is relatively low by world standards - some countries are over 100%.
There are various ways to measure this and it can get very confusing.
Raw debt has roughly doubled over the last six years, but incomings also rise each year to fund repayments.

I've always wondered where governments borrow from. Other governments? Private entities?

Traditionally Govt bonds would be bought and sold as large package. Now they are exchange traded in smaller packages.

https://australiangovernmentbonds.gov.au

Originally Posted by Disco-tastic

I've always wondered where governments borrow from. Other governments? Private entities?

Government borrowing usually takes the form of bond, which may be issued on the open market, or sold as large packages to institutional investors such as super funds, and, possibly the largest proportion of them, are sold to existing bond holders in exchange for maturing bonds.

The bonds may be sold domestically (the majority of Australian government bonds) or internationally.

In addition to bonds, it is possible for governments to borrow by any arrangement that is legal - and they can change the law if necessary to make the arrangement legal. One way out example is the Whitlam government's attempts to borrow from shady middle East sources in the Khemlani affair. There was doubt cast as to whether this was actually legal, and the government did not have a majority in the Senate, so could not have made it legal. But it is an indication as to the sort of thing that is possible.

Originally Posted by JDNSW

In addition to bonds, it is possible for governments to borrow by any arrangement that is legal - and they can change the law if necessary to make the arrangement legal. One way out example is the Whitlam government's attempts to borrow from shady middle East sources in the Khemlani affair. There was doubt cast as to whether this was actually legal, and the government did not have a majority in the Senate, so could not have made it legal. But it is an indication as to the sort of thing that is possible.

That’s was an interesting situation, and some questionable arrangements. Soon after there was a world wide down turn, stagflation and interest rates increased substantially. In retrospect it was was a cheap loan arrangement. There was a lot of concern about excessive debt levels and spending by the present Govt. Interestingly, successive governments began borrowing/spending far more. So what’s excessive spending and debt levels is relative concept, back then and now.

Here’s a graph of net debt relative to GDP. Clearly there was capacity for more Govt debt in 1974, at the time of the Khemlani loan controversy.

The controversy over the Khemlani affair was not because of the level of debt, but because of the reason for wanting the loan (to circumvent a refusal by the Senate to pass a supply bill) and the paying of a shady offshore "fixer" to arrange the finance for a generous fee.

But I just mentioned it to show the rather non-obvious sources that governments can tap for money.

Historically, lending to governments has been fraught with danger, but has become a lot safer over the last hundred or so years as revolutions have become less common. To the extent that government bonds, in Western Democracies, are considered one of the safest forms of investment. And hence can pay lower interest! But if government actions lead to any suspicion by investors that either inflation is going to increase, or that there is some doubt about payment on maturity, then the interest that has to be paid to sell the bonds will increase, something that governments are usually anxious to avoid.

Ok.