A few months back, the Morrison Government expanded its ‘corona loan’ scheme designed to get cheap government-backed money into the hands of struggling small to medium-sized enterprises (SME): Small employers will be given greater access to a $40 billion loan scheme to help them through the recession when the federal government overhauls its flagship JobKeeper
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.
The Morrison Government is facing questions about the purchase of a piece of land for Sydney’s second international airport for 10 times its value. A report from the Australian National Audit Office (ANAO) slams the Department of Infrastructure for purchasing the land from a billionaire family at 10 times its market value in what it
According to Sky News’ Political Editor, Andrew Clennell, company tax cuts are still on the agenda for next month’s federal budget. “We know at the very least there will be some form of tax breaks for business in the budget as the government looks to create as many jobs as possible,” Clennell said. “It could
18 months ago, we asked whether the Snowy Hydro 2.0 – a pet project of former Prime Minister Malcolm Turnbull – was an expensive “white elephant”: More power storage is a good idea. But whether this project is a good way to achieve it remains debatable. The ABC produced an excellent analysis of the pros
AMP chief economist, Shane Oliver, has released research examining whether Australia’s “eye-popping” public debt can be paid-off via strong economic growth, as occurred in the post-War years. Oliver’s conclusion is that repeating the post-War experience is highly unlikely, meaning Australia will likely be saddled with a high debt load for decades to come. Key Points:
Historically low interest rates and government incentives are prompting more first-home buyers (FHBs) to enter the housing market. However, according to Robert Gottliebsen, renewed talk of reintroducing death taxes will sap the confidence of FHBs: After lying dormant for many years, death taxes are suddenly re-entering the speculative arena. And so to treasurer Josh Frydenberg
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The mistake of 1937 is a very useful historical guide for policymakers wrestling with an economic depression. Via the ECB: The economic conditions can be summarized as follows: 1) There are signs that the depression is finally over. 2) Interest rates have been close to zero for years but are now finally expected to rise.
Earlier this month, we reported how the Morrison Government’s JobKeeper subsidy has been an absolute boon for Australian business owners, juicing company dividends and profits. This was reflected in the latest national accounts for the June quarter, which showed that employee wages & salaries fell by 3.3% over the quarter while company profits soared by
He’s back on the tennis court of lies. Via Domain: A deficit well beyond $200 billion is now expected, dwarfing the previous record of $54.5 billion set by the Rudd government during the depths of the global financial crisis in 2009-10. One senior member of the government, speaking on condition of anonymity, said the size
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A nice post from Chris Joye at Livewire: I was recently asked whether it is really true that the AA and AAA rated state governments are having to pay materially more to raise capital to fund their budget deficits than Australia’s banks, which all have lower credit ratings—and in many cases substantially lower ratings in
Josh Depressionberg’s EconomySmasher policy is almost here, at The Fake Left: Cuts to jobkeeper wage subsidies will take $9.9bn out of the economy by Christmas, with a $1.52bn reduction in fortnightly support from late September, according to the McKell Institute. The release of the report on the future of the Morrison government’s signature economic policy
Independent economist Saul Eslake has produced a ‘blueprint’ for a potential national tax reform agenda. The 48-page report was commissioned by the Australia Institute and, among other things, proposes the introduction of a 9% tax on deceased estates that are worth more than $1 million. Death taxes were abolished in Australia more than four decades
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Earlier this week, we reported how the Morrison Government’s JobKeeper subsidy has been an absolute boon for Australian business owners, juicing company dividends and profits. This was reflected in last week’s national accounts for the June quarter, which showed that employee wages & salaries fell by 3.3% in the June quarter while company profits soared
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Ever since tennis pro, Josh Depressionberg, was picked by a process of dart-throwing as the new Australian treasurer, MB has warned that his great economic plan was spectacularly ill-conceived. That plan was to run down public investment to forced interest rates lower and trigger a new round of house price inflation plus consumption supported with