Sometime in the last two decades, the fiscal hawk became an endangered species. They once populated a broad terrain on the political right and left. They shared a view that tax cuts and social spending – popular as they might be – are secondary to balanced budgets and low public debt.
In the global blaze of populism, the fiscal hawk lost its habitat. We, too, might soon feel the loss. All the more so in the current global economic dislocation.
It is trite to say that the world has become more chaotic and dangerous. Let us count the ways. The hot war in the Middle East has led simultaneously to an oil price spike and concerns about global recession, on top of the breakdown of global trade rules.
All this is bad enough. The bigger question is whether governments have the resilience to deal with the chaotic jolts of this new world order. That resilience starts with public finances.
Governments are under pressure to spend on cost-of-living relief as war-induced inflation bites, but public finances are weak and deteriorating. The average debt-to-GDP ratio across the OECD group of advanced economies stands at 83 per cent, rising to 85 per cent. The US has a debt-to-GDP ratio in excess of 100 per cent. The UK’s stands at 100 per cent, France at 115, Italy at around 140 and Japan at a whopping 237 per cent of GDP.
Total borrowing by central governments in advanced economies rose from an estimated $US12 trillion in 2022 to US$17 trillion in 2025 and total outstanding debt is a record US$61 trillion. None of this is likely to abate.
Ten years ago, there was still talk of a global savings glut. The theory was that ageing populations, large current account surpluses in China and oil-exporting countries chasing safe returns, and a general lack of good investment options was leading to lower long-term interest rates.
Today looks very different. At the same time as these high levels of government borrowing, the capital needs of the AI boom are driving big increases in corporate bond issuance. The OECD estimates that nine “hyperscalers” will drive an estimated $US4.1 trillion in capex between now and 2030, much of it financed through debt markets.
So high government borrowing comes on top of rising debt-financed corporate investment in AI, while central banks reduce their involvement as purchasers of bonds. So far, debt markets have handled this without too much strain, albeit with increased interest costs for most governments. But the current bond market jitters suggest this is quite a fragile equilibrium.
But beneath these surface fundamentals lurks a deeper concern – that politics in the democratic world has moved decisively against fiscal responsibility, as it has become more chaotic and dysfunctional.
The UK’s gilt market has seen jitters after the recent council elections, as challengers plot to depose Prime Minister Keir Starmer. The likely replacements – and the prospect of losing Chancellor Rachel Reeves – suggest a move in favour of big expansions in public spending. Current polls indicate that Nigel Farage’s Reform could win the next UK general election, with a platform of large unfunded tax cuts.
France seems unable to form a stable governing coalition. The parliament has fragmented into irreconcilable blocs, including the left-wing New Popular Front and the right-wing National Rally. There is no consensus on paths to fiscal repair, just a revolving door of prime ministers and successive ratings downgrades.
In January, Japan’s new Prime Minister Sanae Takaichi produced a mini-budget that moved decisively away from fiscal austerity, with generous tax cuts and infrastructure spending. Bond markets reacted dramatically with a spike in yields. In recent days, the Japanese 30-year bond yield pushed through 4 per cent for the first time ever.
The United States is the gold medallist for long-standing fiscal irresponsibility and political paralysis. The US deficit stands at 6 per cent of GDP with no meaningful prospect of fiscal repair. Between tax-cutting Republicans and big-spending Democrats, the debate has become bitter and dysfunctional. And the fiscal hawks have flown the coop.
Across the world, politics is less favourable to quaint virtues of budget balance and low debt. The biggest shift is on the right of politics. The long tradition of fiscal conservatism has ebbed in favour of a heady brew of anti-establishment populism, something like the right’s version of 1960s counter-culture.
That trend was first established in the US, where George Bush snr and Bill Clinton stand as the last of the true fiscal conservatives to occupy the White House. And Takaichi is considerably less fiscally conservative than previous LDP prime ministers like Shinzo Abe or Junichiro Koizumi.
This political shift suggests a future of growing deficits and debt across the developed world: probably not resulting in default, but a gradually tightening vice as rising interest costs take up an ever larger share of public spending, as we saw in the recent Victorian budget.
Australia is fortunate on many fronts. We have relatively low debt, and a stronger political culture of balanced budgets. And as an energy exporter, we gain tax revenue from high oil prices. But in their own way, political forces here are pushing us further toward sustained deficit, including at the state level.
We have some institutional resilience, like compulsory preferential voting, independent electoral commissions and a pragmatic electorate. And we have built some important new fiscal architecture like the Parliamentary Budget Office. But we could also do with some sanctuary on all sides of politics for the fiscal hawks.
Michael Brennan is CEO of the e61 economic research institute and a former chair of the Australian Productivity Commission.
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Michael Brennan is CEO of the e61 economic research institute and a former chair of the Australian Productivity Commission.
