## Australia’s Fiscal Framework: Revisiting Options for a Fiscal Anchor

_IMF Working Papers, December 22, 2017_

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## Bibliographic details
- Authors: Allan Dizioli, Philippe D Karam, Dirk V Muir, Siegfried Steinlein
- Published: December 22, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484335383.001

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### Summary and motivation
- Revisits options for fiscal anchors in Australia against the backdrop of a medium-term budget balance anchor that has led to larger than expected upward drift in the net debt to GDP ratio since the end of the mining investment boom.
- Compares a budget balance anchor with a long-term debt anchor using model simulations evaluated against objective macro stabilization–debt control criteria.
- Considers operationalization of a long-term debt anchor using a combination of fiscal rules, including expenditure restrictions and a flexible time horizon for convergence, with the aims of encouraging countercyclical fiscal policy and minimizing the cost in terms of real GDP foregone in the medium term under fiscal consolidation.

### Methodology
- Model: IMF’s G20MOD model used to compare fiscal-anchor regimes.
- Evaluation approach: Model simulations evaluated against objective macro stabilization–debt control criteria.
- Scenarios: Analysis conducted under three likely scenarios for the Australian economy.

### Key findings
- The long-term debt anchor is found to perform at least as well as the medium-term budget balance anchor when assessed with the model and criteria used.
- A medium-term budget balance anchor has coincided with a larger than expected upward drift in the net debt to GDP ratio since the end of the mining investment boom.
- Operationalizing a long-term debt anchor through a combination of fiscal rules can:
  - Include expenditure restrictions.
  - Use a flexible time horizon for convergence.
  - Encourage countercyclical fiscal policy.
  - Minimize the cost in terms of real GDP foregone in the medium term under fiscal consolidation.

### Policy recommendations and operational considerations
- Adopt a long-term debt anchor as an alternative or complement to a medium-term budget balance anchor, given comparable or better performance in model simulations.
- Use a package of fiscal rules to operationalize a long-term debt anchor, notably:
  - Expenditure restrictions to control spending trajectories.
  - Flexible time horizons for convergence to allow countercyclical responses and reduce medium-term real GDP costs.
- Design the fiscal rule package to balance macro stabilization objectives with debt-control objectives across plausible economic scenarios.

### Publication metadata (selected)
- Authors: Allan Dizioli, Philippe D Karam, Dirk V Muir, Siegfried Steinlein
- Publication date: December 22, 2017
- Series: IMF Working Papers, Working Paper No. 2017/286
- Pages: 40
- Issue: 286
- DOI: https://doi.org/10.5089/9781484335383.001
- ISBN: 9781484335383
- ISSN: 1018-5941

*Source: IMF Working Paper "Australia’s Fiscal Framework: Revisiting Options for a Fiscal Anchor" (2017/286).*

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_Source: https://www.imf.org/en/publications/wp/issues/2017/12/22/australias-fiscal-framework-revisiting-options-for-a-fiscal-anchor-45519_