Since late 2007, both State and Federal Governments have been running large deficits to stimulate the economy and maintain expenditure programs.

The current 12 month Federal deficit, as at December 2009, is $52 Billion. Total taxation revenue peaked in October 2008, and has been on a slight decline since then. Expenditure conversely has increased on an annual basis by $50 Billion.

Company tax decreased by 14% in 2009 compared to 2008, and Superannuation tax decreased by 41%. GST collected by the ATO increased by 37%. Overall total revenues decreased by 4% over the same period.

The main drivers in the increase in expenditure between 2008 & 2009 are: Housing & Community Services - up 110%, Education - up 56%, General Public Services - up 45%, Interest Expense - up 41%, Social Security - up 12%, Health - up 9% and Defence - up 6%. Overall expenses increased 15%.

All these deficits feed into the general indebtness of the Governments. Federal debt has increased from $53 Billion in December 2007 to $113 Billion up until December 2009. The States have matched the Feds with a similiar increase of $60 Billion in debt over the same period. So that is a total increase of $120 Billion in two years. In January 2010, another $7 Billion was added. We need to remember that Government debt is future taxation.

In the private sector, total borrowings (see RBA Statistics - D02), increased by $268 Billion from $1,900 Billion to $2,170 Billion. So Australia increased it's borrowings by roughly $388 Billion dollars in 2 years. Where did it all go? You would hope it went into Gross Domestic Product! But GDP only increased by $126 Billion from calender 2007 to 2009. You would need to question our national increase in debt, ie as to how useful it is, especially if we are not using it to produce more things. Next week we will look at this concept more closely by looking at the "utility" of debt over time, and whether there is any correlation between debt and GDP.