A recent ‘X’ post from Treasurer Jim Chalmers made an interesting claim about Australia’s fiscal performance.

It boasted that Australia’s “budget position” now ranks fourth-best among all G20 countries, improving from 15th place in 2021.

His post graphically ascribes this improvement to the change in the Commonwealth government during the intervening period: The 2021 ranking is branded with the Coalition logo, the 2023 ranking with the ALP logo.

Chalmers’ post does not define “budget position,” but it credits his government’s “responsible economic management” for the improvement.

A backgrounder linked to the post confirms what most readers would likely have concluded: The Treasurer is measuring “budget position” by the size of the government deficit.

Treasury’s release cites data from the IMF Fiscal Monitor for October 2023, showing that the expected general government overall budget balance for Australia will be fourth-smallest in the G20 as a share of GDP (1.4 per cent), behind only Saudi Arabia, Canada, and Korea.

What is striking about this statement is that Chalmers did not feel any need to explain that he is fully equating “budget position” and “responsible economic management” with the size of the deficit. In short, these phrases are now presented as synonymous.

Tweet from @JEChalmers

By this marker, the most responsible thing any G20 country could do would be to shut down its government altogether – thus eliminating all revenue, expenditure, and deficits.

No G20 country is running a surplus in 2023. So eliminating the deficit by shutting down government would win the gold medal for “responsible economic management”.

Another way to measure “budget position” might be the ability of government to raise money to fund essential programs and services. By that metric, Australia in fact has the third-weakest budget position among the industrialised countries in the G20 – collecting less revenue relative to GDP than any but the US and Korea.

More broadly, across the 38 industrial countries in the OECD, Australia’s general government revenue collects 5 percentage points less of GDP than the unweighted OECD average.

That translates into more than $100 billion per year in foregone revenue for important public investments and programs – everything from affordable housing to child and aged care, to household income supports, to investments in renewable energy.

Although Australia’s revenue base is weaker than most industrial countries, it is stronger than all but one (Brazil) of the emerging market economies that also belong to the G20. This isn’t surprising; lower-income countries typically have less capacity to raise taxes and other government revenues.

However, this only reinforces the point that ability to raise revenue is a key determinant of a country’s “budget position”.

The fact that most emerging economies lack the institutional and legal capacity to consistently and fairly raise sufficient revenue for public services and infrastructure is a constraint on their economic and social progress – not something to boast about.

Moreover, the fact that Australia’s deficit was much larger in 2021 (the first full fiscal year of the COVID-19 pandemic) than now should hardly be interpreted as a sign of fiscal mismanagement.

Virtually all economists agree that government fiscal injections during and after COVID lockdowns were essential to protect public health and welfare, and to prevent a deeper and longer-lasting contraction.

Australia’s large deficit in 2021 resulted from big programs to support household incomes and employment – such as JobKeeper and the Coronavirus Supplement.

The Coalition government of the day was pressured to implement these programs in part by strong demands from the trade union movement and other social advocates, and they were vital to helping Australians through the pandemic. (Of course, other aspects of the Coalition’s economic and fiscal policies at that time are deserving of strong criticism.)

A similar relationship between deficits and economic recovery is visible in Australia in 2008-09: when fast and powerful government fiscal stimulus (in this case by a Labor government) helped Australia avoid the worst of the fallout from the Global Financial Crisis.

Australia’s deficit in 2009 was also relatively large compared to other countries – and Australia was the only OECD country to avoid recession that year. Those two facts are connected, even if the party logos are reversed.

The desire to score political points from a budget surplus is both understandable and lamentable.

In reality, a myriad of factors influence the size of a deficit beyond the political stripes of the government. Especially after the catastrophes which have befallen the world in the past 15 years, simply identifying fiscal competence with small deficits is reckless and potentially destructive.

A truly strong “budget position” is one that allows government to raise revenues to fund essential services and infrastructure that are essential for economic growth and human wellbeing.

On that score, Australia has a lot of work to do.

Jim Stanford is economist and director of the Centre for Future Work at the Australia Institute, which is hosting the 2023 Revenue Summit on October 27.