Fiscal Rules and Public Expenditure Management - Case Study (1): Australia

The Australian economy has been one of the top performers among OECD countries since the mid-1990s. This economic boom has brought the country's public finance into fiscal surplus since 1998, and general government net financial liabilities approached almost zero in mid-2000. As with monetary policy, fiscal policy has been formulated and implemented under a medium-term framework based on rules. It is the Charter of Budget Honesty Act (1998) that regulates this framework. The country's sound public finances result not only from the introduction of these rules, but also to a large extent from public expenditure management reforms that have continued since the mid-1980s. These reforms, which satisfy both top-down overall expenditure controls and bottom-up micro-level resource allocation and expenditure efficiencies, have extensively altered the conventional budget process. The driving force behind these reforms and the building of more solid public finances originated in concern over external imbalances such as growing current account deficits.

It has not been easy to maintain fiscal discipline in the conditions of fiscal surplus that have prevailed since 2000. Faced with an aging population, Australia needs to provide public services such as health care and education more efficiently and effectively while securing the sustainability of public finances. This will require further improvements in public expenditure management, especially in the accrual-based budgeting system introduced at the end of the 1990s, and more comprehensive assessment of outcomes and outputs in public services.