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For almost a century, the global consensus regarding the role of government in economic matters has largely been that central authorities should intervene in markets in times of crises or over-exuberance. The two main levers that are utilised in this regard is monetary policy (targeting interest rate levels) and fiscal policy (targeting government taxing and spending levels).
Currently, Australia's monetary and fiscal policy settings seem to be relatively close to their 'neutral' positions. The average budget level of G20 nations is -3.7% and interest rates are set to 10.9% on average. For developed nations these levels are closer to -3% and 3.8% respectively. As can be seen below, Australia is closer than most to a balanced budget and has interest rates that are close to current and long-term averages.
Table 1: Macroeconomic policy settings of the world's biggest economies
|
Country
|
Budget surplus as % of GDP
|
Cash rates (%)
|
|
United States
|
-5.8
|
5.50
|
|
China
|
-7.4
|
3.55
|
|
Euro Area
|
-3.6
|
4.25
|
|
Japan
|
-6.4
|
-0.1
|
|
India
|
-6.44
|
6.5
|
|
United Kingdom
|
-5.5
|
5.25
|
|
Canada
|
-3.6
|
5
|
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Brazil
|
-4.6
|
13.25
|
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South Korea
|
-7
|
3.5
|
|
Russia
|
-2.3
|
12
|
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Australia
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-1.4
|
4.1
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Mexico
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-3.4
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11.25
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Indonesia
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-2.38
|
5.75
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Saudi Arabia
|
2.5
|
6
|
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Turkey
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-0.9
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17.5
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Switzerland
|
1
|
1.75
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Argentina
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-2.4
|
118
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Singapore
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-0.3
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3.49
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South Africa
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-4.2
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8.25
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t's interesting to note that much of the world has quite conflicting positions from a fiscal vs monetary point of view. The US, for example has a fiscal policy approach that seems quite loose at the moment (meaning high budget deficit), whilst monetary policy settings by the Federal Reserve are on the tighter end of the spectrum (meaning higher cash rates). Switzerland, on the other hand seems to have a tight fiscal policy setting and a loose (or easy) money policy.
Budget settings have to take into account more things than just the macroeconomic environment (social needs, etc) and thus it can be tricky to identify current fiscal policy settings. For example, very large military spending (e.g. US) is likely to be motivated by foreign policy and not domestic economic conditions. Therefore, seeming conflicts between fiscal and monetary policy settings need to take into account such competing priorities.
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