Luke is wrong. It is true that when the government spends, the amount of moneycirculating in the economy increases, (and when we make tax payments to thegovernment, the amount of money circulating in the economy decreases), but itis not correct to say that there is no financial limit on the amount that thegovernment can spend.
The government can spend only if it has a credit balance in its accountat the Reserve Bank, (apart from a temporary overdraft facility). TheAustralian Office of Financial Management (AOFM) is responsible to ensure thatthe government has sufficient funds in its accounts at the Reserve Bank tocover its expenditure. If there is a risk of the accounts being overdrawn theAOFM raises additional funds by selling government securities.
