Federal taxes do not fund federal spending

August 21, 2025

“… My starting point is that Australia needs to raise more tax revenue. … budget will continue to be in deficit … by an average of 1.2% of GDP. This is a structural deficit which is a major risk to economic sustainability… This deficit needs to be corrected and sooner rather than later. Either taxation has to rise or expenditures need to be cut…”

Such advice is provably incorrect; the recommendation is the very essence of socially destructive neoliberalist austerity.

There was a time when the statements above were true, but not now. In gold-pegged days (pre-1971) an Australian pound on issue was exchangeable for an amount of gold held in CB reserve. Therefore each new pound issued required one be taxed back from circulation.

In Dec 1983, (1971 Bretton Woods, then various pegs) the Australian dollar was fully floated. From that point onwards, Australia’s monetary system became fully fiat, with no necessity for tax receipts to match currency issuance.

In fact, the dollar issuance was freed from the deflationary gold constraint to properly expand to accommodate national growth. A bigger economy needs more money circulating. Purposeful, near constant federal government. deficit spending is therefore essential.

The average deficit since 1901 Federation = 2.4%