From Vulnerability to Resilience: A Strategic Plan for Debt Management and Economic Growth in Australia

By Andrew Jenkins, Curtin University, IMF, 2022

Andrew was supported by Curtin University. His policy paper From Vulnerability to Resilience: A Strategic Plan for Debt Management and Economic Growth in Australia.

Executive Summary

The outbreak of COVID-19 and the related stimulus packages by governments saw fiscal spending reach unprecedented levels. Global debt is now reaching $300 trillion, which was 256% of global GDP in 2020 (World Economic Forum 2022). Hysteresis from these stimulus packages will likely have a choke hold on economies for years to come leaving us less economically prepared for future events. Despite this, fiscal stimuli will still be an essential aspect of modern economies looking to address long term structural changes such as climate change, aging populations, digitalisation, automation, and rising inequality (OECD 2021).

This paper aims to provide two policy recommendations that can be implemented in Australia to reduce the rising vulnerability of government debt whilst also boosting long term, sustainable economic growth. Firstly, the creation of a Debt Sustainability Framework (DSF) which will identify a set of guidelines to promote sustainable borrowing, based on factors such as economic growth, inflation, and interest rates. The framework will provide a roadmap for the Australian Government to manage fiscal borrowing, by setting out targets, limits, and procedures. The framework will also establish mechanisms for monitoring and assessing the sustainability of debt over time. Secondly, this paper will recommend the establishment of the National Investment Plan for Super (NIPS), which will provide tax incentives for superannuation funds to invest in Australia’s future. This will reduce the strain that sectors such as healthcare, education, and the green energy transition have on current on budget deficits.

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