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.


Disastrous Nahan rises to top WA job

Don’t say I didn’t warn you. Via The Australian: He’s a 66-year-old right-wing ­policy wonk with an American accent who bears a striking ­resemblance to Ned Flanders from The Simpsons. Former West Australian treasurer Mike Nahan yesterday ­became the unlikely leader of the shell-shocked Liberal Party, ­replacing the long-serving Colin Barnett in the wake of


Highrise Harry wants to steal your super

By Leith van Onselen Shameless as always, “Highrise” Harry Triguboff has repeated his call for the federal government to permit first home buyers (FHBs) to access their superannuation to fund a housing deposit. From The Australian: Mr Triguboff again called for first-home buyers to be able to ­access their superannuation to ease affordability. “The problem is


Gotti plots grey coup to wreck Australia

By Leith van Onselen Robert Gottliebsen (“Gotti”) has penned a warped piece slamming recent changes to the Aged Pension and cheering on the proposals to allow retirees to downsize their homes without affecting their pension or superannuation entitlements, as well as allowing first home buyers (FHBs) to access their superannuation to purchase a home. From


Creighton: put family home in pension assets test

By Leith van Onselen The Australian’s Adam Creighton has joined me in decrying the Turnbull Government’s proposed housing gimmick of allowing retirees to downsize from their large family homes without affecting the assets test for the Aged Pension or their superannuation caps: A new piece of feel-good idiocy is about to emerge, it seems. The


FOI: Treasury modelling CGT reform

Via the AFR: The federal Treasury has effectively confirmed it has been modelling reductions in the capital gains tax concession for investors, as the government continues to debate internally whether to adopt any change in the budget. In a series of email exchanges with the federal Labor Party, which lodged a freedom-of-information request, Treasury said


Morrison mulls negative gearing caps, boomer bribe

By Leith van Onselen According to The Australian, the Turnbull Government is planning to allow retirees to downsize from their large family homes without affecting the assets test for the Aged Pension or their superannuation caps: Retired Australians would gain new incentives to save the proceeds from selling their houses to move into more practical


Big business splits on company tax cuts

By Leith van Onselen It seems not even Australia’s big businesses can agree on whether the Turnbull Government’s plan to cut the company tax rate to 25% from 30% is a sensible use of taxpayer funds. From The AFR: Corporate Australia is split over Malcolm Turnbull’s company tax cut plan, with two of the country’s


More calls to unwind CGT discount

By Leith van Onselen Unisuper chairman, Chris Cuffe, is the latest to demand reform of Australia’s capital gains tax (CGT) discount, arguing that Australia’s low inflation rate has made the discount is “extremely generous” and calling for a return to the indexation system that applied when CGT was introduced in 1985. From The AFR: “It’s


Turnbull’s faux war on inter-generational fairness

By Leith van Onselen A key reason why Tony Abbott failed as Prime Minister is because he failed to acknowledge the true situation facing the Budget and attempted to pin the blame for “Labor’s Budget mess” on too high government spending under the guise of “lifters versus leaners”, while altogether ignoring the collapse of revenue.


Morrison discovers “living standards” for Budget

Treasurer Scott Morrison is on the hustings today beginning to frame the May Budget: …Acknowledging that families had been doing it “tough” and arguing­ that flat wages growth had seen greater demand on essential­ public services, Mr Morrison­ signalled there would be spending on schools, hospitals and Medicare in the budget, which could include an


Won’t reform negative gearing, will reform work deductions

By Leith van Onselen Back in 2013, former Labor Treasurer, Wayne Swan, announced caps on tax deductible education expenses, which apparently risked growing out of control: “The Government values the investments people make in their own skills and recognises the benefits of a tax deduction for work related self-education expenses. However, under current arrangements these deductions


Grattan: Cutting company taxes will make us poorer

By Leith van Onselen The Grattan Institute has released a new report entitled Stagnation nation? Australian investment in a low-growth world, which cautions that cutting Australia’s company tax rate to 25% from 30% will do little to boost foreign investment but would likely cost the Budget dearly and lower living standards of resident Australians, at


Broken PPRT has swiss cheesed Budget

By David Collyer, cross-posted from Prosper Australia: Treasury is asking why the Petroleum Resource Rents Tax collects only a fraction of the revenues it could. Actually, they know exactly what is wrong, but need public consultation in case someone has a bright idea to fix this broken tax without conflict. There are billions of dollars


Voters don’t buy Coalition’s company tax cut lies

By Leith van Onselen The Turnbull Government will reportedly introduce legislation to implement its proposal to progressively cut the company tax rate to 25% over 10 years, with Treasurer Scott Morrison continuing to claim that 50% of the benefits of the cuts would be passed on to workers in the form of higher wages. From


Phil Lowe back tracks on company taxes

By Leith van Onselen A fortnight ago, RBA Governor Phil Lowe contradictory urged the government to lower Australia’s corporate taxes to attract more foreign investment while simultaneously striving to balance the Budget as well as investing more in infrastructure. These comments were subsequently seized upon by the Turnbull Government to spuik its plan to cut