The Government doesn't really want to live within its means - it just doesn't want to raise taxation. And that's fine, but let's not pretend that makes them in any way careful economic managers, writes Greg Jericho.

The economic debate is a shambles at the moment.

We're at a point where proffering supposedly "once in a generation reform" without any details, any costings, and any consultation is apparently evidence of Turnbull's political genius because the states rejected it.

Of course they did - and of course they should have. It was a proposal delivered with such little genuineness that Turnbull might as well have been offering to sell the premiers a bridge in Sydney.

No sooner was that episode over than the the Prime Minister and Treasurer counselled the nation that we must "live within our means", a phrase that deserves a place next to "economic reform" as the most self-serving tripe that politicians utter.

It has come to mean only that the speaker does not want to fund a certain program or policy, and she or he needs a reason to not do so that sounds vaguely logical. While our Prime Minister and Treasurer trotted out that line this past week, on Friday the Australian Government borrowed $800 million at an average rate of 2.04 per cent - that is a rate below the current underlying rate of inflation of 2.1 per cent.

If you could borrow a home loan at less than inflation would you turn it down because "you have to live within your means"?

Scott Morrison would have you believe that you should. On ABC's AM program on Monday he told Michael Brissenden that "we have to live within our means. You can't spend money that's not there."

Except of course when they do - which is often.

The current level of gross debt held by the Australian government is now $419.7 billion - $100 billion more than the $319.5 billion it was in 2013-14. The budget has also been in deficit now for eight years, and is currently expected to be so for at least another three (we'll find out in a month's time if it is another four).

Needing to live within your means always sounds like a winning argument until you actually realise there are a heck of a lot of exceptions to it.

The living within your means line really only ever applies to new spending.

Morrison made this point himself when he told Brissenden that, "It means that if you do need to spend extra money then you find savings - not tax increases."

But again it only applies to extra money you don't want to spend. Thus when it comes to health and education funding, Turnbull and Morrison would have us realise we must live within our means, but when announcing a $30 billion defence white paper, such concerns are not so great.

And getting back to surplus is nigh on impossible when your approach ignores half of the budget.

Why not tax increases?

Morrison refuses to countenance tax increases and he told journalists last week that "you don't tax your way to a surplus", which is rather odd, because that is what happened under Peter Costello:

After revenue fell during the 1990s recession, it zoomed back and by 1998-99 was at 24.5 per cent of GDP - a level it did not fall below until the GFC hit in 2008-09.

It isn't expected to reach that level again until 2018-19.

Yes, I hear you say, spending is the problem. Certainly it is higher now than in the past. In the Howard-Costello surplus years it averaged 24.1 per cent of GDP - compared to the expected spending of 25.9 per cent of GDP this financial year:

But the reality that we have a revenue problem is made clear when you realise that had government spending been at that level of 24.1 per cent of GDP, the budget would still never have been in surplus at any point since 2007-08.

So OK, we're not living within our means at the moment, but have things gone to hell?

In the May budget last year, the deficit in 2015-16 was expected to be $35.1 billion - or 2.1 per cent of GDP. By December in the Mid-year Fiscal and Economic Outlook this was revised up to $37.4 billion, or 2.3 per cent of GDP.

So the deficit grew and we were living outside our means worse than before. And yet in the May budget unemployment in 2015-16 was expected to be 6.5 per cent; by the MYEFO it was revised down to 6.0 per cent. In the May budget, employment growth was expected to be 1.5 per cent; in the MYEFO it was revised up to 2.0 per cent.

We went backwards in terms of living within our means and yet at the same time the employment situation improved.

It's almost like living within your means isn't necessary to have a strong economy.

As I have long noted, a budget deficit or surplus is a mean not an end. A surplus is also not like debt - if the Prime Minister and Treasurer really believed we must live within our means, then they would announce a surplus for 2016-17 in next month's budget.

They won't because doing so would require government spending to be massively cut in such a way as would send the economy into a recession - i.e. living within your means is not really the be all and end all of economic management.

A look at the yields for Australian government 10-year bonds shows that investors are not at all concerned about Australia's current debt or deficit position:

This does not mean we should spend willy-nilly - one reason those yields are currently so low is because investors are mostly comfortable with our debt position and budget strategy.

But talking about living within your means is not the same as never raising taxation.

The federal government currently raises about 24 per cent of GDP in revenue (and with the states included it is up to about 28 per cent); if instead we raised 32.5 per cent like the UK does and we spent 32 per cent of GDP rather than our current level of 25.9 per cent of GDP then we would be "living within our means".

But that is not what Turnbull or Morrison are suggesting we do.

The government doesn't really want to live within its means - it just doesn't want to raise taxation. And that's fine, but let's not pretend that makes them in any way careful economic managers - it just means they can only see one side of the budget.

Now we could sit around and hope that a boom in revenue will get us back to the Costello surplus levels, but it would be better for us to acknowledge that in the current economic environment, to get revenue back to the level at which historically has been required to achieve a surplus we need to either raise current tax rates, reduce tax discounts and exemptions or introduce new taxes.

And we should acknowledge that "living within your means" is a lie when you arbitrarily decide to limit those means.

Greg Jericho writes weekly for The Drum. He tweets at @grogsgamut. His personal blog is Grog's Gamut.