Governments Keep Spending Money They Don’t Have By Aiden Garrison
Last time, I wrote that the system isn’t failing; it’s doing exactly what we asked. This is what that looks like in practice.
If a pattern keeps repeating, the question isn’t whether the outcome is wrong—it’s why the system keeps producing it. In government, the answer isn’t hidden: it lies in the incentive to be re-elected.
Every decision is filtered through that lens. How a policy affects public sentiment right now matters more than what it does to the budget in three years. Visible costs are managed, while costs that compound quietly are deferred. That is how pressure moves through the system.
When households feel the pinch, governments respond. Electricity bills spike—rebates are announced. Rents rise—first-home buyer schemes are expanded. Each decision addresses a real problem, and each is defensible on its own. But taken together, they create a pattern: spending increases without a corresponding increase in revenue. The shortfall isn’t resolved; it’s carried.
And over time, it compounds.
This isn't a failure of discipline; it’s a function of the system. A government that holds the line absorbs the political cost directly. A government that eases the pressure defers the financial cost into the future. Within that structure, the rational choice is obvious: spend now, manage the consequences later.
That is how a deficit becomes structural. But "structural" doesn’t mean "simple."
The deficit isn't just a political outcome; it’s a financial one—and not always in the direction the debate assumes. Every dollar the government borrows doesn’t vanish. It lands somewhere in the private sector as an asset: on a business balance sheet, in a superannuation fund, or within the financial system. The government’s liability is someone else’s asset. In periods where private credit is contracting and businesses need breathing room, that flow can be what keeps an economy moving.
That isn’t an excuse for unlimited spending; it’s a fact about how the system works—one that almost never makes it into the political conversation. The debate frames deficits as irresponsibility, but the balance sheet tells a more complicated story.
However, the effect of getting this wrong isn’t neutral.
As borrowing costs rise, the burden shifts. Debt servicing absorbs more public resources, and interest flows toward capital. The adjustment comes through higher costs, reduced capacity, or both. And it doesn't fall evenly.
The middle class absorbs the brunt of it—particularly those tied to income and debt. Mortgage holders feel it through higher repayments; households feel it through a reduced capacity to spend. At the same time, those positioned in assets or benefiting from yield are less exposed.
The pressure that triggers the response is real. The response itself is rational. But the mechanism runs in the opposite direction of the intention: short-term relief contributes to long-term constraint.
That’s the pattern. It isn't driven by a single decision, but by the accumulation of many, each made under the same incentive structure. Each one is defensible in isolation; together, they produce something increasingly difficult to manage.
The system doesn’t lack information. It lacks the ability to prioritize long-term stability over short-term pressure without paying an immediate political cost. Until that changes, the behavior won’t.
Governments aren’t uniquely irresponsible. They are simply responding to the incentives placed on them—incentives set by the system they operate within. The system is not designed to avoid these outcomes; it is designed to produce them.
