Shore up fiscal buffers and undertake reform to prepare for ‘rolling crises’: Grattan Institute
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The news: A leading Australian think tank is urging the government to shore up its fiscal buffers in order to offset a future of rolling economic shocks and retain public trust.
In a new report released on Sunday evening, the Grattan Institute warns democracies face rising pressure during times of crisis and need to be “better prepared ... by reducing our vulnerability to known risks, building fiscal buffers, and calibrating expectations about what governments can do to cushion the blow”.
The context: Ahead of the upcoming federal budget on 12 May, the report is pointing out that one of Australia’s “main defences” to economic downturn and “rolling crises” is its ability to draw on a strong fiscal position.
“Having the funds and political capital to spend big when needed cushions the blow, which was crucial to Australia’s relatively speedy economic recovery from both the Global Financial Crisis and the Covid pandemic,” the report says.
But it notes that while the national fiscal position today is “strong in comparison” to global peer economies, domestic state budgets “are under pressure”.
“An underlying imbalance between our spending and the revenue we raise to pay for it — if left unaddressed — weakens our ability to respond to future crises.”
“Fiscal sustainability does not require governments to run balanced budgets or surpluses every year ... but in a world of rolling crises governments must be able to look beyond short-term priorities in order to progress structural budget reforms”.
The report notes that fiscal austerity during crises “can increase political polarisation and support for radical politics” but conversely failing to effective respond to high inflation “can also result in increased support for extremist and anti-system political parties”.
And the Institute says Australia is “not immune to anti-democratic forces or the fraying international rules-based order”.
It suggests a multi-pronged approach to ensure democracy is made more resilient.
In addition to rebuilding fiscal buffers, this includes ensuring federal parliament is more representative of Australia, that there is greater engagement and ensuring the news media is sustainable with investments made in institutions that provide trusted information.
What they said: “Our investigation exposes warning signs for Australia, and underscores that it will take work to ensure Australia’s democracy is fit for these turbulent times,” Grattan Institute CEO Aruna Sathanapally said.
“Reforms that show that those in power are willing to tackle our big challenges (such as the housing crisis, the climate emergency, and the imperative for serious tax reform) will not only deliver a better economy and society, they will build trust in our democratic system to deliver for the people,” she said.
The source: Grattan Institute report: Future-proofing Australia’s democracy
