French unrest offers warning to Australia

Massive demonstrations in France this week have drawn comparisons to Australia's own fiscal trajectory, with experts warning of similar unrest if budgets are not managed carefully.

Hundreds of thousands of people marched through French cities on Saturday to protest underfunded schools and rising living costs. The grievances centered on a lack of teachers and deteriorating infrastructure, reflecting a wider dissatisfaction with the cost of living.

Luke Hartigan, a senior economics lecturer at the University of Sydney, noted that while no single factor caused the discontent in France, soaring energy costs played a major role. Fuel prices in France have increased by 36 percent this year, which is three times the rate of increase in Australia. The conflict between the US, Israel, and Iran has also driven European gas prices up as winter approaches.

Hartigan described the situation in France as a binary conflict between citizens demanding better services and the country's worsening fiscal position. France has not balanced its budget since 1974. According to the International Monetary Fund, total public debt now equals nearly 120 percent of the economy.

By comparison, Australia's government debt stands at 53 percent of gross domestic product. A decade ago, that figure was 40 percent, and two decades ago it was just under 10 percent. Hartigan stated that France's stagnant economy has compounded its fiscal issues, suggesting Australia must boost productivity to avoid a similar path.

Bob Breunig, director of the ANU's Tax and Transfer Policy Institute, pointed to a growing gap between voter expectations and government capacity. He observed that the narrative that governments should solve all problems is more intense in Europe but failing in both regions. French public spending currently accounts for 58 percent of the economy, while Australia's spending equals 40 percent of national output, the highest level in data since 1990 outside of the pandemic.

Breunig compared the two nations, noting that the Australian federal government retains borrowing flexibility while France faces a more rigid financial constraint. He described France's debt levels as reaching a point of unmanageability. The bond market has also reacted to the risk, with the interest rate gap between France and Germany widening to its largest margin since the 2011 European debt crisis.

President Emmanuel Macron has struggled to rein in spending during his decade in power. Breunig said this created a sense of uncertainty among the public. He emphasized the need for an honest conversation in Australia about what the government can deliver and the associated costs.

Structural pressures in Australia, including an aging population, the National Disability Insurance Scheme, higher interest rates, and defense spending, are similar to those in France. Breunig agreed that Australia should not allow its budget to drift for too long. He remained agnostic on whether the solution requires lower spending or higher taxes, stating that making these decisions is the function of democracy.