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.

3

Labor backs federal anti-corruption commission

In last night’s Budget reply speech, opposition leader Anthony Albanese stated that a Labor Government would establish a National Integrity Commission (NIC) to investigate corruption across the federal bureaucracy: Over these 8 long years the Government has focussed on itself, too often treating taxpayers money as if it were the Liberal and National Parties money.

17

Labor launches piss weak public housing plan

Housing policy was a key focus of the Budget reply speech of Labor leader Anthony Albanese. Albanese committed to establishing a Housing Australia Future Fund to build 30,000 affordable homes, as part of a $10 billion social housing package. The proposal would effectively give the Future Fund $10 billion, which would then use the earnings

12

RBA schools Treasury on immigration’s growth impact

One of the most striking omissions from Tuesday night’s federal budget was that it made zero mention of Australia’s per capita GDP outlook. As we know, per capita GDP is a far superior measure of welfare (albeit still highly flawed) than headline real GDP, since it adjusts for the impact of population growth. After all,

5

FWO misses out on bureaucrat spending boom

The May 2021 Budget papers show that the ranks of the federal public service will swell to 174,300 in 2021-22, with almost 5,400 new staff to be recruited during the coming financial year. Government agencies that are taking on additional staff include the Australian Commission for Law Enforcement Integrity, which will grow from 64 to

1

Treasury has no idea on wages

It is clear from last night’s federal budget that the Australian Treasury has no idea on wages. For years we watched the Treasury make bullish predictions on wage growth, always forecasting a marked pick-up in wages over the forward estimates period: This bullishness came despite the federal government running one of the biggest immigration programs

5

The old temporary revenue meets permanent spending trick!

There is nothing that a pollie likes more than temporary revenue recycled as permanent spending. Capital Economics with the note: Treasurer Josh Frydenberg revealed in today’s Budget that the government will spend nearly all of the windfall accruing from the stronger economic recovery. That will result in a permanently larger role of the state and a

11

UBS: Budget to bring rate hikes

Via the excellent George Tharenou: Budget: only $8bn budget improvement over 5 years; given $96bn stimulus The Australian Government Budget, relative to the MYEFO released in Dec-20, forecasts a far smaller than expected cumulative improvement over the 5 years to 24/25 of only $8bn. Positively, 20/21 is a material $37bn better at $161bn (UBSe: $148bn,

73

Federal Budget 2021: Spending in most of the right areas

Tonight’s Federal Budget delivered by Treasurer Josh Frydenberg contained few surprises. As expected, there are forecast Budget deficits as far as they eye can see; albeit not as high as the October Budget predicted owing to the stronger than expected economic recovery and the iron ore mega-boom: The budget projects that the nation’s unemployment rate

58

Frydenberg summons more home buyer patsies

With demand from first home buyers (FHBs) beginning to wane, Treasurer Josh Frydenberg flagged over the weekend that Tuesday’s federal budget will contain a range of new subsidies to improve ‘housing affordability’ under a so-called “family home guarantee package”. Under the changes reported in the Weekend Australian: A government-guaranteed home loan scheme will be offered

30

Distance based road pricing is the future

The Federal Chamber of Automotive Industries (FCAI) is pressuring the federal government to replace Australia’s convoluted vehicle registration, stamp duty, licence fees and fuel excise system with a single road-user charge that taxes drivers for every kilometre they drive: “An efficient road-user charging scheme can address all vehicle users regardless of the type of vehicle

1

2021-22 Australian Budget Preview

By Gareth Aird, Head of Australian Economics at CBA Key Points: The 2021/22 Australian Budget is scheduled for release at 7.30pm (AEST) 11 May. The Budget bottom line will be greatly improved because of the much better performing economy and significantly higher commodity prices. Notwithstanding, more stimulus is expected to be announced, including an extension

17

Why Victoria should tax electric cars

By Jesse Hermans, cross-posted from Prosper Australia Until recently, no government had a “cogent plan” to deal with impending combustion of Commonwealth fuel excise revenue. But now Victorian Treasurer Tim Pallas has risen to the challenge both to future proof Victoria’s road charging regime, and make Zero and Low Emissions Vehicles (ZLEVs) a more affordable choice for

22

Netflix a serial tax avoider

Streaming video giant Netflix paid just $553,705 in tax in Australia in 2020, although the amount paid was up on the previous two years ($485,371 in 2019 and $341,793 paid in 2018). The small amount of tax paid comes despite estimates that Netflix generated in excess of $1 billion in revenue from its Australian subscribers

14

Coalition’s $30m airport land deal “incompetent or corrupt”

Last September, the Australian National Audit Office (ANAO) released a report slamming the federal Department of Infrastructure (DOI) for purchasing land related to the Western Sydney Airport from a billionaire family for 10 times its market value in what ANAO called a “significant and unusual transaction” that “did not exercise appropriate due diligence” and “fell short

16

NSW Premier flags new privatisation push

NSW Premier, Gladys Berejiklian, has flagged another round of privatisation via ‘asset recycling’ to help fund a new regional fast rail network. According to Fairfax: “The asset recycling agenda is definitely renewed for us”, Premier Berejiklian said. “When talking about asset recycling we’re serious, instead of owning something that might not be very creative and

7

No need to fear the federal budget deficit

The Grattan Institute has released a useful blog post explaining why we shouldn’t concern ourselves with the increase in federal government debt: A report released this week by the independent Parliamentary Budget Office (PBO) affirms that there is no need to be concerned about whether our debt levels are sustainable over the medium-term. The PBO does not

6

Budget to drive jobless rate lower. Immigration to lift it back up

Treasurer Josh Frydenberg has signalled that further reducing the unemployment rate will be a priority in the federal government’s Budget on 11 May. He will state in pre-Budget speech on 29 April that both the Treasury and the Reserve Bank are now of the view that growth in wages and inflation will require the official

2

COVID hammers Australian government finances

The Australian Bureau of Statistics (ABS) has released tax revenue data for the 2019-20 financial year, which reveals that Australia’s total tax take decreased by $8.0 billion (1.4%) to $552.0 billion: The decline in tax revenue was experienced across all levels of government; although the main drivers of the fall were: Company income tax was

30

ABC: RBA and Morrison on immigration collision course

There’s revolution brewing at the ABC. A fightback against the fake left editorial viewpoint that played a major role in destroying Australian worker’s living standards in the last cycle via its defence of unbridled immigration. In the last few months, ABC’s Ian Verrender has led on the issue. Now Gareth Hutchence has joined in: Morrison