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.


RBA and ScoMo are at loggerheads over the bubble

Via Domain: Billions of dollars of congestion-easing infrastructure projects that could boost the economy and increase safety are stuck years down the track as the Reserve Bank of Australia calls on the Morrison government to do more. As Prime Minister Scott Morrison promises to pull forward some infrastructure projects, an analysis of the federal budget


Aussies raiding super to pay for healthcare

The cost of healthcare is under scrutiny in the wake of revelations that a growing number of Australians are seeking early access to their superannuation to pay medical expenses. The Association of Superannuation Funds of Australia raised concerns about this trend in February, warning that it demonstrates the need for government funding to the healthcare


Professor flogs company tax cut dead horse

The University of Melbourne’s John Freebairn argues that reducing the tax rate for larger non-resident shareholders would stimulate economic growth and help to increase wages. From The Australian: Mr Freebairn said lower tax rates for large corporations would provide a “stimulus to the investor”, which would see “GDP grow” and that “some of that goes


Private health insurance facing “death spiral” as young’uns exit

The Grattan Institute has released a new working paper, entitled The history and purposes of private health insurance, which forecasts an ‘exodus’ of young and healthy people from the private health system leaving private health insurers struggling to cope with older, sicker patients. This leaves the industry in need of desperate reform: Australia’s private health


Pensioner parasites fasten to taxpayer pork

National Seniors Australia (NSA) has reacted angrily to the federal governments changes to the pension deeming rate, accusing the government of having its “hands in pensioners’ pockets at a time when they can least afford it”. From The Guardian: The National Seniors Australia chief advocate, Ian Henschke, said the Coalition’s $600m commitment was welcome, but


Lunatic RBA: High household debt curbing spending

It’s always funny to read the RBA – which is partly responsible for Australia’s record household debt load – lamenting that high household debt is curbing spending. Via a new RBA research paper: We explore the relationship between owner-occupier mortgage debt and spending using detailed panel data on Australian households. We find evidence consistent with


Cruel Coalition pork barrels retirees, shafts unemployed

Yesterday, Fairfax reported that around 600,000 retirees are about to receive fortnightly pension increases from reductions to the deeming rate – a move supported by Labor: Prime Minister Scott Morrison’s expenditure review committee will consider how to minimise the budget impact of changes to the deeming rate for pensioners, while acknowledging many are feeling short-changed


Negative gearing reform is dead, buried, cremated

After unsuccessfully taking its negative gearing and capital gains tax (CGT) reforms to the past two elections, Labor is set to officially dump the policy from its platform. From The Australian: Anthony Albanese has given his biggest signal yet that he will dump Bill Shorten’s negative gearing and franking credits reforms, responding “No” when asked


“Unjustifiably bad” expat CGT policy still on Coalition agenda

The federal government announced in the 2017 Budget that it would remove a capital gains tax (CGT) exemption for around 100,000 expatriate Australians who sell their main residence while overseas. While the measure was projected to raise $581 million over the forward estimates, it has been condemned by tax and legal experts as being “unjustifiably


ScoMo gets his tax cuts, now for gas reservation…

Via The Australian: Senator Griff said discussions with the government on measures to reduce gas prices, which the minor party had called for in order to support the entire tax cuts ­package, were “progressing very well”. An east coast gas reserve is one policy being considered, as well as a modification to the Australian Domestic


Grattan: ScoMo tax cuts badly regressive

Via the Grattan: Federal Parliament should pass the Government’s Stage 1 tax cuts immediately but should defer consideration of the controversial Stage 3 cuts, according to a new Grattan Institute working paper. Budget blues: why the Stage 3 income tax cuts should wait finds passage of the Stage 1 cuts would give the economy a much-needed boost at


Exclusive: $180k salary is filthy rich

Via Domain comes some “exclusive” fake news: More than two thirds of the final stage of the Coalition’s $158 billion income tax cut package will flow to workers earning under $180,000, new figures show, as the Morrison government moves within striking distance of its first policy victory since the election. The Coalition has refused to hand over costings


Denniss: Recessionberg’s tax cuts Keynesian stupidity

From Richard Denniss at the AFR: Imagine if the Reserve Bank of Australia (RBA) conducted monetary policy the way the Morrison government conducted fiscal policy. Step one: publish optimistic forecasts of GDP and wage growth to create “confidence”. Step two: set interest rates five years down the track, based on those optimistic forecasts. Step three:


Should we run infrastructure like the RBA?

So says the RBA: Dr Lowe also said major infrastructure funding should be run like monetary policy – at arm’s length from the government – so that voters trust it is fit for purpose. “If we don’t get it right then the public doesn’t trust the politicians,” he said at the Crawford leadership forum in Canberra


Labor to support stages 1&2 of tax cuts

Via Albo: What we have determined this morning to do is to propose a negotiating position to the Government which would bring forward tax cuts faster for those who need it and importantly those who will spend it to stimulate demand in the economy.” We have determined the following position: Stage one – of course,