Why is Australia so opposed to public debt?

Third, investment spending has much bigger spin-offs for the economy in the long term than increased transfers and consumer spending, for example, it offers an opportunity to rectify the past neglect of social and environmental investment such as in education, health, public transport, low-cost housing, urban roads, rivers and water.

But governments need to be institutionally prepared. For investments to be well timed and productive there needs to be prior federal state coordination and a national audit to determine priorities. This is currently being done through co-ordinate federal-sate bodies such as COAG or the new Infrastructure Australia body.

The rules of the game

So why is Australia so different from the rest of the world in its stance on fiscal debt?

It cannot be simply the rules of the game. These clearly define the fiscal target as being "to maintain budget balance, on average, over the course of the economic cycle". Formally, this gives governments scope to run budget deficits or surpluses depending on the economic circumstances. Nor have our rules changed much relative to the Hawke and Keating period.

Yet our fiscal advisers seem to make a distinction between “automatic stabilisers” and “discretionary spending” - the former is tolerated (subject to some attempt to cushion its effects) but the latter is not.

I think the reasons must lie in:

1. Costello’s constant harangues against government debt, forcing new state governments to avoid incurring new net fiscal borrowing;
2. the fiscal conservatism of people like Carr and Rudd;
3. the political objections of the far right, who always prefer a tax cut;
4. ongoing fears of the risk of a debt downgrading (which makes little or no sense); and
5. a degree of reluctance to run fiscal surpluses in the face of our stubbornly large current account deficit (which is illogical as private borrowing to fund infrastructure has exactly the same effect on the current account deficit).

Can you think of other reasons?