Australian budget

The Australian Budget has a history of running small deficits and surpluses with occasional blowouts. Contemporary history has seen General Government net debt to GDP approach 20% under Labor in 1995 and the Coalition in 2017. In between, a Coalition government under Prime Minister John Howard and Treasurer Peter Costello ran surpluses sufficient to pay net debt down to zero during Australia’s mining boom.

Ratings agencies have adjusted the sovereign credit rating over time to reflect this ebbing and flowing of debt. In 1975, Standard and Poors rated Australia AAA. By 1989 the rating had dropped two notches to AA. It was subsequently upgraded again to AAA as the Howard Government operated consecutive surpluses.

The major vulnerability for the Australian Budget is the external imbalance in an economy that runs persistent current account deficits. Because Australian banks borrow so much money in international markets largely to fund domestic mortgages they are constantly at risk of international liquidity shocks.

The Australian Budget steps in with public guarantees to the banking system when this happens. Thus, although the Australian Budget has relatively low debt-to-GDP metrics, credit rating agencies demand that they remain that way to preserve the AAA rating as a backstop to bank borrowing.

Australian politics insists that Australia sustain budget surpluses ostensibly because it is equated with good economic management. In truth, the surplus is simply a figment of the property bubble at the heart of the Australian economy that requires the support of the tax-payer to persist. The Australian Budget is the key stone in the Australian credit arch.

In recent years the Australian Budget has deteriorated as the structure of the economy has left is denuded of growth sources. As the mining booms passed and the enormous household debt (186% of GDP) stalled consumption and investment, fiscal deficits became a key component in GDP growth.

As well, the disintegration of Australian political integrity associated with the end of the mining boom period doomed the Budget to successive regimes of neglect.

This very obviously undermined its role in the above system exposing Australia to deeper adjustments during future periods of global stress.

MacroBusiness covers all apposite data and wider analysis of these issues daily.


There are better options than raising the Medicare Levy

By Leith van Onselen There is renewed speculation that the Government could raise the Medicare levy to fund the health budget. From The Age: Doctors believe the Turnbull government could be contemplating another increase in the Medicare levy. The Australian Medical Association has used its pre-budget submission to plead with the government to return any


Centrelink’s robo-debt fiasco faces huge clean-up bill

Cross-posted from Independent Australia: By substituting manual checking of data for a computerised algorithm in a typical Coalition cost-cutting exercise, Centrelink now faces thousands of man hours dealing with the debacle including a frenzy of class action suits. John Haly reports. CENTRELINK HAS been fraudulently issuing debt notices to people who owe no money. Persons so


Retirement reforms boost labour participation

By Leith van Onselen For many years, the Australian Treasury spruiked its Three P’s framework for rising living standards. Under this framework, we were told that Australia must: 1) boost productivity; 2) raise workforce participation; and 3) increase the population via skilled migration, if the nation was to continue to enjoy rising living standards. Personally,


John Howard takes his entitlement

By Leith van Onselen John Howard was always the master of ‘middle-class welfare’, as evidenced by the questionable increases in the eligibility for the Aged Pension, baby bonuses, family tax benefits, and superannuation concessions under his watch. Now it has been revealed by the Huffington Post that John Howard has claimed far more taxpayer expenses


WA Budget lies set absolute new low

The integrity of Australian treasuries across the country is collapsing as lies have become forecasting de rigueur. The latest and greatest is Dr Nahan’s next installment of fiction for WA in which: • The general government operating deficit for 2016-17 is now estimated to be $3,388 million, a $527 million improvement on the $3,914 million


Budget of Lies hangs on Future Fund lie

I’m afraid S&P that you have missed an excellent brand repair opportunity in Australia, via David Uren: The projected budget surplus of about $1.1 billion will be achieved only because of a reclassification of about $4bn in Future Fund earnings in that year, not because of any improvement in under­lying budget performance. An accounting change


MS: MYEFO bad for economy

From Morgan Stanley: We expect Australia will lag the global rotation from monetary to fiscal easing, with the Mid-Year Budget update still focused on austerity and preservation of the sovereign AAA-rating. This leaves our below-consensus outlook for growth, RBA cash rates and the AUD over 2017 intact. Fiscal policyfrozen in the AAA headlights: The 2016-17


So when is Australian decline a problem, grey-beards?

The MYEFO remain center-stage today as we wend our way through Australia’s grey-beard commentary responses. The tone is, as usual, soothing. Alan Kohler is a picture of nonchalance: Standard & Poor’s was looking to the MYEFO for a reason not to downgrade Australia; Moody’s and Fitch were looking for a reason to do it. It


Goldman: Morrison’s clever Budget

From Goldman today: In our view, there is nothing particularly alarming in today’s update – with no further blow-out in government expenditure, some success in legislating previously promised savings (A$22bn), a lower forecast peak in net debt (as a % of GDP), and a very conservative assessment as to how a much higher terms of


MYEFO’s greatest lie

Yesterday I listed the forecasting lies in the MYEFO and today there’s more from the parameter changes via Peter Martin: The ratings agencies won’t fall for it, and neither should you. Treasurer Scott Morrison has revised down tax revenue by $30.7 billion over the next four years in a belated admission he has a revenue


Gloomy S&P pikes downgrade

From S&P: S&P Global Ratings said today that the Australian government’s mid-year budget update has no immediate effect on the credit rating or outlook on the Commonwealth of Australia (unsolicited ratings AAA/Negative/A-1+). The government’s worsening forecast fiscal position, as outlined in its latest budget projections earlier today, further pressures the rating. We remain pessimistic about


Fitch, Moody’s affirm AAA

Fitch ash affirmed the AAA. Now from Moody’s: The government’s decision to maintain the objective of a balanced budget by 2020-21 denotes continued commitment to fiscal consolidation. However, meeting the fiscal targets will be difficult in an environment of weaker nominal GDP growth. Its decision to depart from standard practice to assume that commodity prices


And now for the MYEFO of Lies

He just never learns. Having placed the nation on downgrade watch owing to lies in May, Treasurer Scott Morrison has doubled down in his MYEFO.  He has downgraded the Budget outlook by $10.3bn over four years: But is still projecting a surplus in 2021: Even though has absolutely no way to get us there. Except


One more MYEFO outlook for the road

From Bill Evans at Westpac: • The Treasurer will release the Federal Government’s MidYear Economic & Fiscal Outlook (MYEFO) on Monday, December 19. • In the May Budget, the budget position was projected to edge into surplus in 2020/21, to around $4bn to $5bn. On our figuring, with a $6bn deterioration in the bottom line


Does big government hurt growth?

Cross-posted from The Conversation: Since the late 1970s it has largely been the consensus that “big government” is detrimental to growth. This manifested after the financial crisis when countries, including previously fiscally-comfortable countries like Germany and the UK, adopted austerity programs, ostensibly to spur growth by cutting government expenditure. But our research shows the story


ACOSS urges fair budget reform

By Leith van Onselen With the Turnbull Government due to release its Mid-Year Fiscal and Economic Outlook (MYEFO) on Monday, the Australian Council of Social Service (ACOSS) has urged the Turnbull Government to abandon $7 billion of “zombie” budget expenditure measures that would harm the poorest members of society: ACOSS today urged the Federal Government


Why every generation feels entitled

Cross-posted from The Conversation: It’s a time-honoured tradition for older and younger generations of Australians to argue about whether government is treating them fairly. Our report Age of Entitlement, released last month, was aptly named. No-one denied its conclusions: senior Australians get tax breaks unavailable to younger Australians worth A$1 billion a year – and


Population ponzi overruns Medicare

By Leith van Onselen Back in June, Mike Moynihan and Bob Birrell from the Australian Population Research Institute released a report showing that the number of doctors has easily out-paced growth in the population, driven largely by a conga-line of OTDs that enter Australia to work in a regional area only to then move to


Budget commodity woes are all self-inflicted

From David Uren today: Treasury is bracing for a pasting. The downgrading of the budget performance has been such a constant since the economy first emerged from the global financial crisis in late 2009 that every budget update is assailed by economists, commentators and the political opposition for its excessively optimistic predictions. …Big and unexpected