by Mitch Kokai
Senior Political Analyst, John Locke Foundation
In the U.S., the fiscal year 2016 budget deficit was nearly $600 billion, and federal debt now stands at $14.8 trillion or 77 percent of GDP. The Office of Management and Budget anticipates the federal debt will reach 111 percent of GDP by 2042. The Congressional Budget Office predicts a debt to GDP ratio of 150 percent by 2047. Differences notwithstanding, it’s clear that the U.S. has a fiscal problem and it’s forecasted to only get worse. …
… As it happens, our friends in the Anglosphere — Australia, Canada, New Zealand, and the United Kingdom — have all faced similar fiscal circumstances and their experiences hold crucial lessons for U.S. policymakers. These countries have shown that the right policy choices at the right time can avert budgetary crises and enable economic growth, investment, and job creation.
The Anglosphere countries have all been confronted with fiscal crises due to overspending, high debt levels, and a political tendency to put off reform. The problems eventually caught up to them. Canada was accused of becoming “an honorary member of the Third World.” An incoming British Cabinet minister was warned by his predecessor in 2010 that there was simply “no money.” Circumstances in Australia and New Zealand were equally bleak.
Each country thus subsequently undertook ambitious fiscal reform programs to control spending, cut budget deficits, and reduce or stabilize government debt. The circumstances were slightly different in each country: some reforms were led by center-left governments and others by conservatives; some involved broader market reforms and others were more limited to public finances.
But there were key similarities, too. In each case, fiscal reforms mostly focused on government spending rather tax hikes. The economic and social outcomes were generally positive. Anti-austerity warnings failed to materialize.