Is a government budget surplus important?

Achieving budget surpluses is always something governments use to support their claim to be efficient managers of a country’s finances, particularly if they have been delivering and are in the run up to an election.

However, I think many would agree that governments do at points during an economic cycle need to move into deficit territory in order to finance key spending projects and manage a slowdown in growth.

Of course the Labor party in an election year isn’t able to talk about its budget surplus credentials over the past few years and as could be expected, Treasurer Wayne Swan’s delivery of the Federal Budget last week (and the fact that we are in deficit and won’t return to surplus until about 2015-16), was attacked by the Opposition and the media.

There are so many for and against arguments for the Australian Government to be in deficit or surplus, but let’s look at what other countries around the world are doing.

Here are the top 10 budget surpluses in the world:

   Country

  (% of GDP – 2012 est.)  

 1. Macau

45.30

 2. Brunei

23.90

 3. Kuwait

21.60

 4. Republic of the Congo

15.40

 5. Norway

15.20

 6. Angola

12.00

 7. Saudi Arabia

11.90

 8. Gabon

6.70

 9. Libya

6.40

 10. Oman

6.30

Saudi Arabia ranked at number 7 with recording a budget surplus of 11.9% of its GPD is the only G20 nation to be in the top 10 budget surpluses in the world. Brazil comes in the top 20 budget surpluses with a ranking of 19 and a surplus of 2.7% of GDP. There are only approximately 40 countries that have a budget surplus recorded and only four of the G20 nations are recording surpluses.

The below table shows budget surpluses for the G20:

  Country

  (% of GDP – 2012 est.)  

 1. Saudi Arabia

11.90

 2. Brazil

2.70

 3. South Korea

0.60

 4. Germany

0.10

 5. Russia

0.00

 6. European Union

-0.20

 7. Australia

-0.80

 8. China

-1.60

 9. Indonesia

-1.90

 10. Turkey

-2.60

 11. Mexico

-2.80

 12. Italy

-2.90

 13. Argentina

-3.20

 14. Canada

-3.80

 15. France

-4.50

 16. South Africa

-5.40

 17. India

-5.60

 18. United States

-7.60

 19. United Kingdom

-7.70

 20. Japan

-9.10

On the issue of debt, the attitude to debt as a nation is an interesting one, given that we have one of the highest levels of personal indebtedness in the world (given how much we borrow as nation to purchase housing and cars). However, I think we have a different attitude (a negative one) towards government borrowing, even though this is used for essential services and infrastructure.

The table below represents public debt as a percentage of GDP with the G20 nations:

  Country

  (% of GDP – 2012 est.)  

 1. Japan

214.30

 2. Italy

126.10

 3. France

89.90

 4. United Kingdom

88.70

 5. European Union

85.30

 6. Canada

84.20

 7. Germany

81.70

 8. United States

73.60

 9. Brazil

54.90

 10. India

51.90

 11. South Africa

43.30

 12. Argentina

41.60

 13. Turkey

40.40

 14. Mexico

35.40

 15. South Korea

33.70

 16. China

31.70

 17. Australia

26.90

 18. Indonesia

24.80

 19. Saudi Arabia

12.90

 20. Russia

12.20

Japan is ranked number one with public debt, which has a percentage of 214.3% of its own GDP. This is extreme compared to Russia and Saudi Arabia with only 12.2% and 12.9% of GDP of public debt respectively.

How does Australia measure up? Pretty well actually, with the fourth lowest debt to GDP of the G20 nations.

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