Deficits don't threaten future generations

August 7, 2025

The article “ Tax, productivity growth and equality” is based on the false premises that taxes directly pay for federal government spending and that federal government deficits have to be repaid.

Modern Monetary Theory informs us that all federal government spending is new spending and that federal taxation merely takes money out of the economy. There is no debt to be paid back by anyone to any other party in respect of the federal government deficit.

The federal government deficit is simply the currency that the Australian Government has spent into the economy that hasn’t yet been taxed out of it. It’s our savings.

It is false to equate federal government debt with personal or business debt. The Australian Government is the issuer of the Australian dollar. As such, it can never run out of AUD and can always afford to purchase whatever is for sale in that currency.

By contrast, we, all other levels of government, businesses and institutions are currency users. Therefore, that debt does need to be repaid to the lenders. Nobody “lends” AUD to the Australian Government. As the currency issuer, it doesn’t need to borrow AUD.