US Writer: A Fiscal Lesson from Western Australia’s Spending Binge

US Writer: A Fiscal Lesson from Western Australia’s Spending Binge, by Dan Mitchell.

I’m generally a fan of Australia. I wrote my dissertation on the country’s private Social Security system, and I’m always telling policy makers we should  copy their approach. The Aussies also abolished death taxes, which was a very admirable choice.

I even wrote that Australia is the place to go if politicians wreck the American dream and turn us into a New World version of Greece.

But that doesn’t mean there isn’t plenty of foolish policy Down Under.

A column in the Sydney Morning Herald notes that the mining-heavy state of Western Australia faces a fiscal crisis even though it enjoyed a lengthy economic boom when there was a lot of demand for natural resources.

…the state has recently attracted much attention – and derision – for the way its policy making elite squandered the wealth generated by the resources boom. …how WA managed to emerge from the once in a lifetime mining boom with an estimated debt burden of $40 billion by 2020…

How did a boom lead to so much debt, $20,000 per person?

The answer, unsurprisingly, is that politicians in Western Australia spent too much money. Annual outlays grew by an average of nearly seven percent each year. …

That spending spree may not have seemed reckless when the resources boom was generating big increases in government receipts.

The same happened in Alberta, Alaska, and Chile.

The main conclusion we should draw is that it is vitally important to control spending in boom years. That’s when lots of revenue is flowing to the government and it’s very difficult for politicians to resist the temptation to spend that windfall revenue.

hat-tip Matthew