Recent assessments of fiscal policy by both the academic and business communities in Australia have outlined various limitations with present arrangements. This thesis examines one such deficiency, namely the way in which the budget surplus has, and is, being redeemed. Furthermore, it offers a proposal to address this deficiency. The current mood of Australian economic policy is one of fiscal conservatism to lower international debt levels. At present, there is a lively debate regarding the merits of foreign debt. The underlying theme of this dissertation is that this body of opinion, being put forward by Pitchford and others, would be strengthened through an assessment of the negative impact budget surplus redemption may have upon existing policy instruments. Attempts at isolating the effects of the budget surplus are more problematical than is supposed because budget surplus redemption is entwined in both monetary policy and debt management operations. Moreover, the case for the budget surplus appears exaggerated in view of economic and political constraints and in its operational naivety. The origins of its downfall lay in the fact that the budget surplus presents a case of the tail wagging the dog. Budget surplus redemption adversely affects monetary policy and debt management policy: the two principal instruments used in lowering foreign debt.
This dissertation examines the impact budget surplus redemption has upon monetary policy and debt management operations. Some account must be taken because monetary policy and debt management operations are, at present, high on the political agenda. The conclusion of this dissertation is that both monetary policy and debt management operations are adversely affected by budget surplus redemption.