The Australian Commons

On the need for stronger rules around public money

By Jason Gay

There are few powers held by government that matter more than the power to spend public money. Governments collect taxes, provide services, build infrastructure and respond to emergencies. These are necessary functions of a modern nation. Yet when expenditure continually exceeds revenue, the difference must eventually come from somewhere. It is borrowed today and becomes an obligation carried into tomorrow.

The Australian Government’s 2026–27 Budget forecasts receipts of $822.9 billion and payments of $853.9 billion, producing an underlying cash deficit of about $31 billion. Commonwealth gross debt is forecast at approximately $1.05 trillion. These numbers do not mean Australia is on the verge of financial collapse, and deficits can be justified in some circumstances. They do, however, raise a broader question about the way we govern ourselves: should borrowing form a routine part of ordinary government, or should it require an exceptional reason?

The problem is not one political party. Governments of different persuasions face much the same incentives. The political benefits of spending are immediate and visible, while the costs of borrowing are often delayed and spread across millions of taxpayers. A government can announce a new program, road, payment or tax concession today. The interest bill may still be appearing in Budgets decades later.

This makes fiscal discipline particularly difficult. We have deliberately created limits around many other government powers because experience teaches us that good government cannot depend entirely upon good intentions. Parliament scrutinises legislation. Courts can restrain executive action. Independent auditors examine how public money has been used. The Reserve Bank has substantial independence in monetary policy. Yet when deciding the broad limits of annual spending and borrowing, much still depends upon governments restraining themselves.

Australia already has a statutory framework intended to improve fiscal transparency and accountability through the Charter of Budget Honesty. The Budget process also requires Parliament to authorise government spending. These are important safeguards, but they are primarily concerned with transparency, reporting and parliamentary authority. They do not impose a permanent rule requiring spending to be limited by sustainable revenue, debt to be deliberately repaid or national savings to be accumulated.

A stronger framework could begin with a simple principle: ordinary expenditure should normally be based upon sustainable revenue. That does not mean balancing the Budget to the dollar every financial year. Revenue rises and falls, recessions occur and emergencies cannot be conveniently scheduled. Instead, government could operate from an independently calculated measure of the revenue Australia can reasonably sustain across the economic cycle.

That figure would become the starting point for the Budget. Governments would still decide how money was spent, but they would begin with the amount available rather than beginning with the amount they wished to spend.

The second principle would be that debt should come with an obligation to repay it. Borrowing during war, recession, disaster or another genuine national emergency may be entirely reasonable. What should be questioned is the quiet transformation of exceptional borrowing into permanent debt. When economic conditions return to normal, part of Commonwealth revenue should be automatically directed towards reducing that debt.

The third principle would be that Australia should save deliberately. A prosperous nation should not approach every major piece of infrastructure or every national emergency with only two choices: raise taxes or borrow more. It should build financial reserves during good years. Australia has already demonstrated through the Future Fund and several other investment funds that governments can place assets aside for long-term purposes.

A broader National Resilience Fund could extend that principle. It could accumulate assets over decades and be available, under strict rules, for major infrastructure, severe national emergencies and other extraordinary needs. Once sufficiently mature, part of its investment earnings could potentially reduce the amount of taxation required to fund government.

These rules would need an institution to administer them. An Independent Fiscal Commission could calculate the sustainable revenue base, certify the spending limit, calculate required debt repayments and determine the contribution required to national savings. Parliament would establish the formulas and rules. The Commission would apply them independently.

That distinction matters. The Commission should not decide whether Australia spends more on hospitals or submarines, roads or pensions. Those are questions for elected representatives. Its purpose would be to determine the financial boundary within which those political choices are made.

Borrowing outside those boundaries should remain possible, because no rule written today can anticipate every crisis tomorrow. But borrowing would require a defined process and public justification. Emergency provisions might allow temporary borrowing during severe recession, war, natural disaster or another exceptional event. Parliament might retain the ability to override the normal limits through a special procedure. The point is not to make borrowing impossible. It is to make borrowing something that must be explained.

This distinction may be the heart of the proposal. The default position should not be that government may borrow unless there is a reason not to. The default should be that government spends the resources available to it unless there is a compelling reason to place an additional obligation upon future taxpayers.

None of this determines the proper size of government. Australians can continue to disagree about taxation, welfare, defence, health, education and infrastructure. A fiscal constitution would not answer those questions. It would simply insist that whatever Australians decide government should do, we should also decide how we are going to pay for it.

Responsible government is not simply about what can be delivered today. It is also about what is left tomorrow.

A nation should aspire to pass to the next generation good infrastructure, strong institutions and effective public services. But it should also aspire to pass on manageable debt, substantial reserves and enough financial freedom for future Australians to respond to problems that we cannot yet imagine.

Australia has constitutional rules governing who may exercise political power and how that power is divided. There is a case for asking whether we also need stronger enduring rules governing the use of public money.

Something, in other words, resembling a fiscal constitution.