Well, the long-awaited Federal Budget is out next Tuesday.
It's likely to show a record deficit and outline spending on big projects to kickstart the economy.
But for most Australians, it's considered a pretty dry document and can be hard for people to understand.
Often politicians and other commenters compare it to a household budget to simplify the ideas.
But, is that a good comparison?
Not really.
It's true that for both scenarios, the budget is a document or structure used to organise spending.
But, there are some big differences.
"Often you'll hear politicians talking about 'we need to live within our means', for instance, and draw a direct comparison between the government budget and the household budget," said Leonora Risse, an economist at RMIT.
But the spending goals of governments and households are simply not the same.
The purpose of a government budget is to help the entire economy, whereas a household budget is mainly concerned with its own financial situation.
"The government spends money and accumulates debt to rebuild opportunities for people's jobs, expand GDP, create more business confidence in the future, and to get the economy rolling again so that it does have capacity to repay that debt," Dr Risse said.
"That's a very different scenario from households, where we take out debt because there's a consumption item that we want to enjoy and we just don't have the income to pay for it."
Let's talk about spending more than we earn
So, a budget deficit (like the one we will have next week) is another way of saying the Federal Government will be spending more than the revenue it receives.
Its revenue mostly comes from taxes (like income and corporate tax and GST). So when more people are out of work, there's less money coming in.
But remember, the Government budget's main goal is to help the economy and that's why they'll be spending more than they receive this year.
For households, though, our income comes from our wages or salary from the job we do, from our investments, or perhaps from government benefits like the pension.
We're often warned against spending more than we earn because if we take on too much debt we can't afford to repay (the debt collectors could come knocking).
What about access to loans? Does the Government just go to a bank like we do?
Nope.
When individuals or households want a loan, we usually rock up to the bank with our documents and prove we've got the income, credit history and assets to borrow money.
But the Government has a lot more power to access debt, says Paramjit Kaur, a public service economist who has worked on the past 10 budgets.
"The Government has lots of power to borrow and households have limited power. The Government can print money if they need to, but households can't," she said.
Most governments don't just literally go to the presses to get more cash — they go to the bond market to borrow money (which is like an IOU that they sell to investors).
"Investors will get a relatively low return compared to other financial investments, but government bonds are low-risk. And so the Australian Government generally has no problem raising that money through those borrowing facilities," Dr Risse explained.
So, can the Government just borrow as much as it wants?
Well, technically, yes.
The Government used to have a legislated debt ceiling but, since that was repealed a few years ago, it now only has a self-imposed debt ceiling — which is currently $850 billion.
On the flip side, the Government can increase that debt ceiling when it needs to, so it's hardly a constraint.
That's quite a different situation for households, says Deloitte Access Economics' Nicki Hutley.
"A household is limited by the income it has," she said.
"So, if I'm on a certain income, the bank will only lend me so much for a credit card or mortgage.
"If I'm the Government, as long as people will buy my bonds or if I choose to print money, I can, theoretically at least, keep spending money for quite a period of time before the costs of me doing so come home to roost."
Why don't we just get money from the magic money tree?
That's otherwise known as printing money.
Technically, the Government's not in charge of doing that.
That's a job for Australia's central bank — the Reserve Bank of Australia — which is independent from government.
And the reason the RBA isn’t keen to print money (or release more money into the economy in other ways) is because a negative consequence of that can be inflation.
Take Venezuela as an example. You need a stack of cash just to pay for basic household goods (like a chicken) because the country has the highest inflation rate in the world at 15,000 per cent.
More physical money in the economy can weaken the purchasing power of that money — and we don't want that!
Let's sum it up
Household and government budgets are both about managing money.
But our goals are very different. A government budget is really best described as a tool to manage the economy and has far fewer constraints than a household budget.
And a household budget is more to do with balancing our income and expenses.
So, keep all this in mind when you're hearing all the budget news next Tuesday.
https://news.google.com/__i/rss/rd/articles/CBMiV2h0dHBzOi8vd3d3LmFiYy5uZXQuYXUvbmV3cy8yMDIwLTEwLTAzL2ZlZGVyYWwtYnVkZ2V0LW1vbmV5LWJ1ZGdldGluZy1mYW1pbGllcy8xMjcyNDcwONIBJ2h0dHBzOi8vYW1wLmFiYy5uZXQuYXUvYXJ0aWNsZS8xMjcyNDcwOA?oc=5
2020-10-02 19:29:00Z
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