Budget Repair? Better to repair your thinking instead

It is the highest level since 1988, in the quarterly data published by the Reserve Bank of Australia (RBA)¹ and the Bank of International Settlements (BIS)². But a few minutes’ browsing on the RBA website will locate Occasional Paper No. 8: Australian Economic Statistics 1949-1950 to 1996-1997,³ in which annual data shows that the government debt to GDP ratio was 88% of GDP in 1950.

This is more than 1.6 times today’s ratio of 54%, and that is using a measure of debt that is smaller than the one used today – you will notice in Figure 1 that where the data overlap, the blue line for 1949-1997 lies well below the orange one for 1988-2022.

If government debt was much higher under Menzies than it is today, then is high government debt necessarily a bad thing?

Rescaling the old data series to match the new where they overlap gives a debt level in 1950 of 143% of GDP, using today’s measurements. This is almost three times today’s government debt ratio—see the dotted line in Figure 1.

Chalmers’ error is probably the result of lazy research by his staff, rather than by Chalmers himself. But correcting it raises an important question: if government debt was much higher under Menzies than it is today, then is high government debt necessarily a bad thing?

After all, the economy was in a state of near permanent boom under Menzies: the average unemployment rate between 1950 and 1966 was 1.9%, and its peak level in 1961 was 3.2%.⁴

Furthermore, the post-WWII period of strong and tranquil growth ended in 1974—at much the same time that government debt levels fell below the level they’ve