Debts and Deficits in Australia

The question of the current account deficit and the external debt has become the hottest issue in Australia since the «Bottom of the Harbor» scandal of 1982. The net external debt, currently calculated at a bit more than 30% of GDP (with interest payments at about 3% of GDP), is growing rapidly due to a current account deficit that, in the second half of 1989, was approximately 5% of GDP. The spirited and, at times, hysterical controversy over the debt and deficit issue has been lead by Professor John Pitchford, who supports (or at least gives comfort to) the Labor government’s policy of benign neglect of the deficit, arguing quite sensibly that foreign borrowing is not inherently bad in the absence of externalities that cause the private cost of external borrowing to fall short of the social cost (1). The financial press and, more recently, the business community, have strongly condemned the government’s attitude.