Modern Monetary Theory (MMT) and the NDIS
Modern Monetary Theory (MMT) is a way of understanding how money actually works. It challenges conventional thinking about government spending, especially all the talk about debt and deficits.
MMT starts with a simple observation: a government that issues its own currency, like Australia (or the U.S., or the UK) can never “run out of money” in the way that a household or business can. Unlike households, Australia’s Commonwealth Government doesn’t need to “earn” or “borrow” money before spending. Instead, the Government actually creates money via it’s spending.
Key Ideas of MMT
- Currency-Issuing Governments Are Not Like Households
MMT points out that comparing national budgets to household budgets is misleading. While a household must earn or borrow the money that it spends, a currency-issuing government like Australia does not. A currency-issuing Government must spend first, before it collects taxes or issues bonds. After all, taxes cannot be paid before dollars actually exist – and households cannot bring dollars into existence.
This means that deficits (Government spending more than it takes in as tax) are not inherently bad or dangerous. What we call deficits are simply situations where the Government created more money than it took back as tax.
- Government Spending Creates Money
When the government spends, it credits bank accounts – literally creating money. Taxes, in contrast, remove money from circulation. So, taxes don’t fund Government spending. Taxes are important, though: they help control inflation and ensure money has value by requiring people to pay in the government’s currency (amongst other things).
- Deficits Are Almost Always Good for the Economy
MMT identifies that budget deficits are rarely a problem. If the economy needs to grow, government deficits help by putting money into the economy and creating demand. A surplus, on the other hand, means the government is removing more money than it’s adding. This can reduce or prevent growth. If an economy is already slowing down, or in recession, budget surpluses make this situation worse.
The only time that deficits might be ‘bad’ for the economy (and therefore that surpluses might be good for the economy) is if the economy is already at full capacity. In that case, spending more money into the economy may cause inflation.
Most of the time, however, the economy is not at full capacity. In May 2025, for example, Australia’s total underemployment was 10% (this is people without any work – unemployed people – plus people with less work than they want. An underemployment rate of 10% means that for every 100 hours Australians want to work, only 90 hours of work are available). So, Australia is definitely not at full capacity.
- The Real Limit on Government Spending
This is not to say that the Government can spend without limit. It can’t. But the limit on Government spending is not how much it collects in revenue. The real limit is the economy’s actual capacity. If the Government tries to spend more when the economy is already at full capacity, prices will rise and inflation will follow.
This inflation will be known as ‘demand-driven inflation.’ Note that this is not the only type of inflation. But it is the only type of inflation that Government spending can cause – and it can only be caused if the Government tries to increase spending on things that are already being fully utilised.
(Hint: very little, if any, of Australia’s most recent inflation was caused by demand. See here for a conclusion that only 1/3rd of the inflation that Australia experienced in the early 2020s was driven by demand. Inflation in that period peaked at 8%. 1/3rd of 8% is 2.67%).
Common Misunderstandings
- MMT doesn’t say governments can spend endlessly. Rather, MMT points out that Government spending should never exceed the resources available in the economy. If the Government tries to spend more than there is available, inflation will follow.
- MMT is not about “printing money” recklessly. MMT is about matching spending to the economy’s capacity.
Why This Matters for the NDIS
MMT has major implications for how we think about issues like the NDIS (and climate change, healthcare, education, poverty, etc). It challenges the idea that “we can’t afford” vital programs like the NDIS. Instead, MMT simply asks: Do we have the real resources (labour, materials, skills) to run the NDIS? If so, it does not matter how much money the NDIS represents.
We can always afford to pay for the NDIS. The issue is always whether there is anything available to buy with that money.