By Denis Hay
Description: Smash Monetary Myths
Think Australia must “live within its means”? Discover how monetary myths block progress – and how truth could unlock a fairer economy for all.
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Introduction: Awakening to Economic Reality
Location: Picture yourself in a suburban kitchen in Brisbane. A retiree scans a headline: “Budget Blowout Threatens Recovery.” He frowns, imagining his taxes being squandered.
Action & Thought: “If the government’s out of money,” he wonders, “who’s going to pay for hospitals or pensions?”
Emotion: That anxiety is shared by millions of Australians – and it’s built on a lie.
Problem: Australia’s economic conversation is riddled with dangerous public money myths. The biggest? Our federal government, issuer of the Australian dollar, must balance its budget like a household. This myth shackles progress, justifies cuts, and blinds us to what our nation can truly achieve through Australia’s monetary sovereignty.
Problem: Myths That Shape Our Economic Destiny
Myth 1: “The Government Must Live Within Its Means”
Storytelling: In 2014, then-Treasurer Joe Hockey stood before the nation with his “Budget Emergency” speech. He warned that without cuts, Australia faced collapse. The media repeated it unquestionably.
Reality: Unlike households, the Australian government creates its own fiat currency. It can always pay its bills, fund services, and invest in the future if resources (labour, materials) are available.
“Governments like Australia’s can never run out of their own money.” – Prof. Bill Mitchell.
This truth is at the core of Modern Monetary Theory, and Australian advocates are working to explain it.
Myth 2: “Budget Surpluses Are Always Good”
Storytelling: In the late 1990s, Treasurer Peter Costello boasted of a record surplus. But many Australians also remember cuts to aged care, education, and Indigenous services.
Impact: A surplus means the government taxes more than it spends, withdrawing money from the economy. A struggling economy can lead to job losses, stagnation, and inequality. This is the essence of the budget surplus myth.
Myth 3: “Taxes Fund Federal Government Spending”
Storytelling: You’ve heard it: “Taxpayers’ money pays for services.” However, this view of government spending as dependent on taxes is not true for currency-issuing nations.
Truth: The government spends money into the economy first. Taxes help manage inflation and ensure currency use, not fund the budget. This is one of the most harmful myths about taxpayer money.
“Spending comes first; taxation later.” – Dr. Stephanie Kelton.
What These Myths Cost Us
Location: A public school in regional NSW. The roof leaks. Teachers buy their own classroom supplies.
Emotion: “Why can’t we get funding for basic infrastructure?” asks a frustrated principal.
Reality: The government chooses not to fund it, not because it lacks money, but because it clings to outdated debt and deficit myths.
- Public hospitals are understaffed.
- Students are buried under HECS debt.
- Aged pensioners skipping meals to pay rent.
The cost of these myths? Human lives, lost potential, and generational injustice.
Monetary Sovereignty as a Tool for Justice
What Is Australia’s Monetary Sovereignty?
Fact: Australia issues its own fiat currency. It doesn’t need to borrow foreign currency. It can fund anything for sale in AUD, provided it doesn’t exceed the economy’s real capacity (causing inflation). This is the foundation of Australia’s monetary sovereignty.
What Could We Do with This Power?
Imagine an Australia with:
- Free tertiary education
- A federal job guarantee
- Public housing built on a national scale
- A Green New Deal for regional towns
Several countries demonstrate how monetary sovereignty can be used for the public good. With a debt-to-GDP ratio exceeding 250%, Japan continues to invest in infrastructure and social stability through its central bank. China actively directs state funds into major infrastructure, education, healthcare, and renewable energy projects, lifting millions out of poverty.
Other nations, such as Norway and South Korea, also show how strategic public investment fosters resilience. Norway uses its sovereign wealth fund to maintain high-quality public services, while South Korea invests in innovation and education as cornerstones of economic strength.
Australia has a similar capacity. With bold policy and public understanding, we too can harness government spending power to create a more equitable society.
Global Comparisons: Learning from Others
Japan
Despite a debt-to-GDP ratio of over 250%, Japan remains stable and prosperous. Their central bank buys government bonds to keep interest rates low.
China
China uses its monetary sovereignty to build entire cities, high-speed rail, and fund innovation. It invests first, asks questions later.
Media and Political Myths: The Obstacle to Truth
Action: Corporate media push fear-based narratives: “Budget black holes,” “debt spirals,” “living beyond our means.”
Quote: “These scare campaigns are designed to justify austerity and weaken public demand for justice.” – Dr. William Mitchell
Outlets rarely challenge the public investment Australia needs to thrive.
A New Economic Story for Australia
Vision:
- No more “we can’t afford it” excuses
- Full employment through a Job Guarantee
- Clean energy powered by public investment, Australia can afford
A young single mum in Cairns receives a guaranteed job restoring wetlands. Her child goes to a public early learning centre. Her life is transformed – not by charity, but by sound policy.
Q&A Section
Q: Isn’t printing money inflationary?
A: Inflation occurs when spending exceeds real resources. Strategic investment can boost capacity and prevent inflation.
Q: Doesn’t the debt burden future generations?
A: Government debt is just money spent into the economy. Future generations inherit better infrastructure, not a repayment plan.
Q: Why do politicians stick to these myths?
A: Because they serve corporate interests. Myths justify cuts to services while increasing subsidies to the private sector. These are the true economic reforms Australia desperately needs.
Smashing the Myths for Good
Australia’s monetary system is a tool for justice. But as long as myths dominate public discourse, we remain stuck. It’s time to move beyond fear, demand the truth, and invest in a future worthy of us all.
Question for Readers
What public service would you like to see fully funded by public money if the government stopped pretending it was broke?
Call to Action
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Recently I have made the following comments, on another thread.
MMT does not offer any solution to funding public programs in the current economic cycle.
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….whenever the term sovereign currency is used, I tend to interpret it as code for less restrained public expenditure and advocacy of Modern Monetary Theory.
The notion of MMT, a sovereign currency, “our government can never run out of money”, demonstrates an incomplete analysis or understanding of MMT.
It is not a panacea for limitations of public expenditure, and in some ways it requires a more disciplined approach to expenditure than our current system .
We have now outsourced inflationary control to the Reserve Bank.
Monetary policy is the main means of controlling inflation and the burden fall disproportionately, particularly on first home buyers.
Using interest rates is a blunt instrument, and there are always long lags in assessing its success.
On the other hand, MMT puts the government front and centre in responsibility for controlling aggregate demand (ie inflation) via its spending program.
So in the current circumstances, with inflation running far higher (almost double the target of 2%-3%), MMT requires an increase in taxation, or reduction in expenditure to reduce demand.
In other words, during our current inflationary periods, MMT requires action contrary to a spending increase and contrary to the political will demonstrated by successive governments
One (though there are plenty) of my major misgivings about MMT is that governments of all persuasions have shown no inclination to respond to inflationary pressures by reducing expenditure , “the independent Reserve Bank is responsible ”
Later, if I get around to it, I might comment on options to reduce aggregate demand (ie inflation) that don’t simply rely on the blunt instrument interest rates.
But… MMT/sovereign currency offers no solution to expenditure constraints during the current economic cycle.
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I think the key point is that in the current cycle of inflation, MMT would have a contractionary fiscal policy.
Either by reducing spending or increasing taxes.
Regardless of whether we adopt alternative priorities, MMT does not provide any new sources to support public expenditure during this phase of the economic cycle.
As I’ve noted previously, to broaden the load of suppressing aggregate demand (ie inflation) I would like the Reserve Bank to have some ability to set the GST above the current minimum.
This even seems consistent with the neutrality of MMT on whether contractionary fiscal policy is a combination of tax increases or spending reduction.
There are plenty of myths about MMT.
But constraining public expenditure in an inflationary period is a demand of it.
A Commentator
Thanks for sharing your perspective. I think where our views diverge is not on whether inflation requires management, but on how we identify the causes and choose the tools.
MMT does not claim governments should always spend more, nor does it deny the need for contractionary policy in certain phases. Its argument is that the tools should fit the cause.
In the current cycle, the evidence shows inflation has been largely driven by supply shocks, energy markets, and pricing power rather than excess public spending. In those circumstances, reducing public services or raising mortgage costs does not address the cause and falls the hardest on those with the least influence over prices.
Where MMT adds value is in making the trade-offs transparent.
Instead of outsourcing inflation control to the blunt tool of interest rates, it places responsibility with elected decision-makers, allowing for targeted and accountable responses, whether through taxation, regulation, investment, or strategic restraint.
We may simply differ on whether the current model is adequately serving the public interest, but I appreciate the discussion and your thoughtful engagement with the topic.
Here’s an explanation from a Michael Hudson video transcript.
MICHAEL HUDSON ON HOW MONEY WORKS.
The paper money that you carry around in your pocket is technically a government debt. Government issued paper money in order to finance some kind of spending. And it issues a paper money and as its holder, the holder has a financial claim on the government.
So each of you viewers who have the currency of any government in your pocket, in financial terms, you’re creditors to the government whose paper currency you’re holding. And that makes you, in effect, a creditor to the whole society.
You don’t think of yourself as a creditor because it’s not that financialized. But technically, if you look at the government balance sheet, assets have to equal debts. That’s why it’s balanced. So you have government debt, liabilities on the left side, and on the opposite side, the assets. Paper money is a big chunk of this.
And if the government would repay this paper currency, presumably by giving you something in return, there wouldn’t be any paper money left. So of course the government’s not going to pay this paper money.
Well, let me spell out just how this system works.
Suppose you could do what America does and in miniature. Suppose you go to a grocery store and you buy food and other household items. And when the cashier prints out your receipt for $30, you sign an IOU, IOU $30 and put your name. Well, that’s not a credit card. That’s just you’re writing a note, a signed note, IOU $30 to the store or whoever should be the bearer of this note. Well, the manager would come out and ask you, well, what am I supposed to do with this IOU? And you could tell them, well, you can use this $30 IOU to pay whomever you buy your produce from, you know, they’re delivering milk, you know, pay them partly in check and give them my IOU and let it just circulate around and it’ll circulate and everyone will trade it just like they’d trade a dollar bill or a bank check. It’s part of their assets.
Well, obviously that’s not how the world works for you and for other individuals, but it’s how the international financial system works.
This system is currently being manipulated by bankers in the interests of bankers.
It can be manipulated in the interests of the public good.
The greater good.
The social good.
But not if we cling to the status quo.
Thanks Steve, that is a good explanation of how money functions as a government IOU. The part many people miss is your final point. The system itself is not the problem. It is who it serves.
Right now, the financial system is largely shaped around the priorities of banks, markets, and private profit. But the same tools could be directed toward the public good if we had the political will to do so. Money is simply a social tool, and tools can be used differently when circumstances and values change.
The choice is not between keeping the status quo or chaos. It is between a system designed to serve a small group, or one designed to serve the wider community.