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
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.
By Leith van Onselen In 2011, billionaire investment legend, Warren Buffett, penned an opinion piece in the New York Times whereby be revealed that he pays a lower rate of tax than most of his employees. The article highlighted how there are tax breaks that are available only for the rich with resources to take
By Leith van Onselen Back in November, secret NSW Government documents revealed that the Parramatta Light Rail Project – the centrepiece of the Government’s plans to cement Parramatta as Sydney’s second central business district, as well as facilitate the building thousands of apartments around Sydney Olympic Park – has experienced a massive cost blowout and
By Leith van Onselen Back in 2014, the Productivity Commission’s (PC) released a report into the provision of public infrastructure, which presented a scathing assessment of the governance, selection and execution processes by Australia’s governments, and recommended that governments build a “credible and efficient governance and institutional framework for project selection”, that includes “properly conducted
By Leith van Onselen Around $13 billion worth of Budget savings measures remain stalled in federal parliament, blocked by senators Jacqui Lambie and the Nick Xenophon Team. Meanwhile, Treasurer Scott Morrison claims the support of crossbenchers would be unnecessary if the Labor Party backed the Government’s fiscal policies. From The Australian: There are 15 measures
Cross-posted from The Conversation: The Turnbull government’s signature economic policy at last year’s election was a 5% cut in the company tax rate, over a ten-year period, at a cost to revenue estimated to be in excess of A$48 billion. As the government itself has conceded, this now stands very little prospect of being passed
By Leith van Onselen Last October, The Age ran a detailed report on how Melbourne’s hospitals are being overrun by the ongoing population influx caused by Australia’s mass immigration program: …leaked data indicates there has been no improvement in ambulance “ramping” and that this month hundreds of patients waited longer than an hour to get
From Parasitefax: Any change to the existing environment permitting tax breaks on negative gearing or capital gains tax deductions on property investments would quickly push prices lower, said Andrew Schwartz, the group managing director of debt and equity investor Qualitas. “We would expect that any changes to the tax base, such as cuts to CGT
By Leith van Onselen An interesting skirmish has erupted between Assistant Minister to the Treasurer, Liberal MP Michael Sukkar, and his Labor counterpart, Andrew Leigh, over the impact of Australia’s dividend imputation system on company tax cuts. The fight began when Sukkar accused Leigh of misunderstanding the dividend imputation via the below media release: Confused
By Leith van Onselen It’s one step forward, two steps back with the Coalition. After Fairfax speculated this morning that the Turnbull Government would move to unwind the capital gains tax (CGT) discount in the May Budget, Do-Nothing Malcolm has quickly moved to rule-out reform. From The SMH: “We do not support the Labor Party’s
By Leith van Onselen Senator Nick Xenophon’s suggestion that the Government should raise the Medicare levy to fund the National Disability Insurance Scheme (NDIS) has been critiqued by The Australian, which claims that it would cost Australian families up to $2,600 per year in extra taxes: Modelling commissioned by The Australian yesterday revealed that even
By Leith van Onselen While political debate in Australia continues to rage over whether to adopt the Turnbull Government’s plan to cut the company tax rate to 25% from 30%, a similar debate is taking place in the United States over the Trump Administration’s own corporate tax cut plan. Mark Thoma, a macroeconomist and time-series
More sanity today from Do-nothing Malcolm. Via the AFR: Speculation is rife in Canberra that the federal government might contemplate some form of federal royalty regime, or other changes to resources taxation, as the need to fill a yawning hole in the budget intensifies. Mining industry representatives are thick on the ground in Parliament House
By Leith van Onselen Melbourne researchers have released a paper calling for the government to tax foods high in sugar, salt and saturated fats, while subsidising fruits and vegetables. From ABC News: In an article to be published in the PLOS (Public Library of Science) Magazine, modelling by the university’s Centre for Public Health Policy
An occasional pat on the back for Treasurer Scott Morrison today as he says he will not spend any iron ore windfall: The federal government will frame a May budget with tax increases or spending cuts to make up for its blocked omnibus bill, despite a potential $30 billion revenue windfall caused by a booming
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.
By Leith van Onselen The Nick Xenophon Party (NXT) has confirmed that it will not support the Turnbull Government’s welfare omnibus bill, thus punching a $4 billion hole in the federal Budget. From The AFR: The federal government will look at raising taxes or slashing spending elsewhere after the Nick Xenophon team announced it would
By Leith van Onselen Ever since the Turnbull Government launched its plan to cut the company tax rate to 25% from 30%, it has argued that lower company taxes are vital to ensure that Australia remains a desirable destination for foreign investment. Without such cuts, the Coalition argues, Australia would lose-out on foreign investment to
By Leith van Onselen Former infrastructure and transport minister, Anthony Albanese, continues to push hard for a High Speed Rail (HSR) linking the East Coast capitals. From The Canberra Times: Our nation should… invest in the proposed high-speed rail link from Brisbane to Melbourne via Sydney and Canberra, which would turbocharge economic development in regional
By Leith van Onselen As expected, Treasurer Scott Morrison is using Thursday night’s speech by RBA Governor, Phil Lowe, to pressure the Senate cross-bench to pass the Coalition’s plan to cut the company tax rate to 25% from 30%. From The Australian: Scott Morrison has seized on the Reserve Bank’s backing of company tax cuts
By Leith van Onselen Back in November, The Guardian published an interesting article arguing that Australia’s private health insurance system is broken and should be scrapped in its current form and replaced by a single health insurer: This drastic assessment has been prompted by numerous reports from government, consumer groups and peak health bodies over
By Leith van Onselen It’s official. After months of speculation, the Turnbull Government will axe the National Housing Affordability Agreement (NHAG) in the upcoming Budget. From The Australian: The $9 billion National Housing Affordability Agreement is set to be axed in the May budget following a report revealing that the states and territories had failed
By Leith van Onselen Today, I want to explain why I expect the Turnbull Government to unleash some kind of first home buyer (FHB) stimulus in the guise of “housing affordability” in the upcoming May Federal Budget. 1. We have already received some hints: Last month, Michael Sukkar, whose responsibilities include housing affordability, refused to
By Leith van Onselen A fortnight ago I argued in no uncertain terms why the Turnbull Government should junk its planned company tax cuts and instead redirect the money that would have been spent into infrastructure projects. Yesterday, Fairfax’s Peter Martin argued along similar lines: [Turnbull’s] embrace of very expensive, very big company tax cuts
The WA Budget is a true comedy act. Today is the release of the 2016-17 Pre-election Financial Projections Statement and the news is that after just 48 days the downgrades are flowing with no surplus in sight in the forward estimates any longer: Despite a robust upgrade to iron ore LNG prices, growth has been