In 2022–23, the Australian Government recorded a temporary budget surplus, driven by strong employment and elevated global commodity prices. However, medium-term projections suggest a return to structural deficits. Rising expenditure pressures—specifically commitments to the National Disability Insurance Scheme (NDIS), aged care, defence, and the clean energy transition—threaten to expand the nation's net debt.
Over the last decade, Australia benefited from historically low borrowing costs, with government bond yields falling below 1%. However, the global surge in inflation has forced central banks to raise interest rates sharply, pushing commonwealth bond yields above 4%. Consequently, the cost of servicing the national debt is projected to grow faster than any other major category of government spending over the next decade.
Faced with these figures, some economic analysts suggest that the Australian Government should look to reform tax expenditures and increase revenue rather than continuing to accumulate sovereign debt. Proponents of this view argue that high public debt levels risk crowding out private investment and placing an unfair tax burden on future generations. Conversely, others argue that borrowing is the only viable way to finance crucial, long-term productive infrastructure without stifling current economic growth through higher tax rates.
Extract C states: "Some economic analysts suggest that the Australian Government should look to reform tax expenditures and increase revenue rather than continuing to accumulate sovereign debt."
Using the data in the extracts and your knowledge of economics, evaluate the view that an increase in a country's national debt is inevitably damaging to its macroeconomic performance.
245 exam-style questions on AQA A Level Economics 2.5 Fiscal policy and supply-side policies, covering 2.5.1 Fiscal policy and 2.5.2 Supply-side policies. Each one has a worked solution and a mark scheme showing where the marks go.