Notice that, given the importance of debt servicing to federal spending at the time, this would have meant a significant surplus of 4 to 5 per cent of GDP measured in primary terms (i.e., net of interest payments). Obviously, since we are basing our counterfactuals on actual history, starting points will matter to the simulations.
According to our model, under this assumption of aggressive fiscal consolidation, the federal debt would have peaked at about 50 per cent of GDP in 1986–89, instead of around 67 per cent in 1995. Indeed, the federal debt would have declined over the next several years, falling into the high 30s as a percentage of GDP, some 30 percentage points lower than actually occurred.