Alarm signal: France’s crisis casts a shadow over Australian public finances
Economist Luke Hartigan, senior lecturer at the University of Sydney, argues that the explosion of discontent that triggered marches and violent incidents in France and other European countries functions as a „warning signal” for Australia. If a sincere discussion about the national budget does not take place, there is a risk of repeating that model. In various French cities, hundreds of thousands of people gathered on Saturday to protest against underfunded schools, where complaints centered on the lack of teaching staff and degraded infrastructure. These specific grievances were interwoven with broader discontent related to the cost of living. In Australia, as in other developed countries, households are struggling to adapt to an affordability crisis, facing high and continuously rising prices. Although the scale of the problems may differ in magnitude, the complaints are common.
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In comparison, Australia’s total government debt stock appears benign at 53%. A decade ago, our debt was 40% of GDP, and two decades ago it was just under 10%. Hartigan emphasized that France’s weak economy amplified its fiscal problems, highlighting the need for Australia to work hard to stimulate productivity. If you think about trajectories, their problems give us an idea of where we might find ourselves if we continue on this path, Hartigan said. It is a warning signal. Bob Breunig, director of the Tax and Transfer Policy Institute at ANU, noted that there is a growing gap between what voters believe the government should be able to do and what politicians are capable of delivering. What is happening everywhere is this narrative that the government should be able to solve all your problems, and this narrative has probably been pushed further in Europe than here.
It fails in both places, but it is more acute there than here, Breunig said. Evidence of this growing demand for government intervention is that French public spending now accounts for 58% of the national economy, shown by IMF data.
It fails in both places, but it is more acute there than here, Breunig said
In contrast, Australia’s total public spending equals 40% of national output – the highest level in data stretching back to 1990, outside the pandemic, at levels similar to the United States and the United Kingdom. „All these protesters are asking the government to help them, but the government has exhausted its credit card,” Breunig said, describing France’s debt as being at „unmanageable levels.” „The federal government here can still borrow and has a lot of flexibility, while the French simply have no money.” President Emmanuel Macron’s decade in power has been marked by failures in attempts to curb spending. „There is a real sense that people do not know what to do,” Breunig added. The bond market reflects growing alarm about France’s fiscal trajectory.
France typically has to pay a higher interest rate on its 10-year long-term debt than fiscally prudent Germany, and the difference between the two rates is a measure of financial markets’ confidence in France’s fiscal position. This spread is now at its widest level since the 2011 European debt crisis.
Amid structural pressures on the budget caused by an aging population, the NDIS, higher interest rates, and efforts to increase national defense spending, Breunig agreed that there are lessons for Australia in not letting the country drift too far and for too long. „We need an honest public conversation about what can be expected from the government and what cannot, and then a conversation about what it would cost and whether we are willing to pay for it.” While the opposition attacked the deadly effect of high public spending on economic dynamics, Breunig said he was broadly „agnostic” whether fixing the budget involved smaller spending or higher taxes. „In the end, making these decisions is exactly what democracy is meant to do.” • Patrick Commins is the economics editor at Guardian Australia