THE FISCAL-ELECTORAL NEXUS IN AUSTRALIA, 1976-94

This article re-evaluates existing political business cycle theory in the specific context of the political economy of Australian fiscal pol icy since the mid-1970s. Whereas 'traditional' political business cycl e models, formulated within a Keynesian framework, assume a high level of state autonomy over fiscal policy, this article argues that an env ironment of fiscal restraint has been imposed on Australian federal go vernments over the study period. Given the historical dynamics of Aust ralian economic policy which inform this study, a hypothesis is develo ped which reflects the policy optimisation dilemma which has confronte d Australian federal governments when formulating fiscal priorities in a pre-election context. On one hand, there are pre-poll demands for e xpansionary fiscal settings from the electorate; on the other, there a re demands from financial markets and domestic neoliberal interests fo r fiscal restraint. Reflecting the fact that identifiable costs are as sociated with implementing expansionary fiscal policy settings, it is hypothesised that such an approach will be adopted only in times of gr eatest political need, when an incumbent government is facing a popula rity deficit in a pre-election context. While the study confirms that the fiscal-electoral effect is relatively weak, electoral demands do s till influence the fiscal priorities of Australian federal governments . This is particularly so with the case of personal taxation relief, a policy approach that appears to be more acceptable to financial marke ts, key neoliberal interests and some segments of the electorate.