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Thus, although total asset accumulation of the economy continues to stay above its benchmark level, the crowding-out effect of PSBR on the funds available for production causes the total capital stock to stay below its level under 'PSP'.
For both reasons, limitations on the PSBR may be appropriate.
The two budgets of 1993 programmed substantial fiscal consolidation over FY 1994/95 and 1995/96,(27) with the goal of reducing the PSBR from 7 per cent of GDP in FY 1993/94 to balance in the medium term.
Notwithstanding the need to finance a general government net PSBR of around 5 per cent of GDP, the world bond market rally, lower domestic short-term interest rates and lower domestic inflation expectations led to a significant fall in Australian bond yields and lower long-term real interest rates in 1993.
The social security system contributed to the rise in overall PSBR as companies (including SEEs) continued the practice of deferring the transfer of withheld contributions to the social security system.
The PSBR is then derived as the year-to-year change in outstanding public sector liabilities.
In addition to improvements in the underlying tax and spending trends, privatisation receipts and interest capitalisation contributed importantly to the reduction in the deficit, but because of the use of interest capitalisation in previous years, no reduction in the PSBR is likely in 1993.
However, it is clear that the relatively low level of private investment cannot be attributed to a 'lack of savings' because in fact little more than half of the funds available to the private sector are in fact used for fixed capital formation, the rest being used to acquire monetary instruments in order to finance the domestic PSBR.
In the event, the outturn for the EBR was 2 per cent and that for the PSBR 3 per cent of GNP, thanks largely to the cyclical buoyancy of the economy.
Capie and Webber rightly characterize the PSBR approach as reflecting the way economists and policymakers in postware Britain have tended to view the world, particularly in its emphasis on government borrowing and private-sector lending as the critical behavioral relationships governing money supply growth.
Against this background, the draft budget foresees a further decline in the PSBR to around 1 1/2 per cent of GDP, with public investment growing at a more moderate pace and government consumption remaining almost flat in volume terms.
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