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.


Victorian Premier turns infrastructure gun on ScoMo

By Leith van Onselen The vertical fiscal imbalances plaguing the federation has reared its ugly head again, with Victorian Premier, Daniel Andrews, writing to Prime Minister Scott Morrison demanding billions of dollars in funding from the federal government to cope with unrelenting immigration-driven population growth. From The SMH: In a letter to Prime Minister Scott


Shorten again endorses negative gearing reform

Via the AFR: As Sydney and Melbourne house prices continue to fall, Mr Shorten signalled that an originally planned July 1, 2019 start date could be deferred until 2020. He said Labor remained committed to its three-year policy of reforming negative gearing to make the system fairer for first-home buyers against investors who now receive


Gladys launches $100b ponzi rail Hail Mary

By Leith van Onselen More details have emerged about the NSW Government’s proposed four routes for high speed rail (HSR) into Sydney: A high speed rail project Premier Gladys Berejiklian has committed to start work on if she wins the state election could cost $100 billion… “A reasonable figure would be $100 billion in Australian dollars


The extraordinary fiscal cost of compulsory super

By Leith van Onselen The Australian’s Adam Creighton has penned an enlightening article on the extraordinary cost of Australia’s superannuation system, which is running at around quadruple that of the Aged Pension, according to analysis provided by the peak superannuation industry, Association of Superannuation Funds Australia (ASFA): Age Pension outlays, which totalled $46.8 billion this year,


Federal government is a key player in the ‘gig’ economy

By Leith van Onselen John Wilson – the managing legal director of BAL Lawyers and an accredited specialist in industrial relations and employment law – has penned an interesting article in Fairfax on the increasing spending on contractors by federal governments and agencies over recent years, which has come as the Australian Public Service (APS) has


Why high speed rail is unviable

By Leith van Onselen Rail transport should be in my DNA. My father ran Victoria’s freight railway system for many years and I grew up around trains. I even spent six months post university working in ‘the business’. Even with this background, I have never understood why politicians, ‘experts’ and commentators have an inherent bias


‘Draconian’ expat CGT policy delayed to 2019

By Leith van Onselen 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


EY lobbies against new digital tax

By Leith van Onselen Last year, the federal government implemented a Diverted Profits Tax (DPT), affectionately dubbed the “Google Tax”, which armed the Australian Taxation Office (ATO) with stronger powers to fight multinational tax avoidance. The DPT was budgeted to raise around $100 million in revenue a year from 2018-19. Recently, news emerged that the


Parliament passes visa legislation to accelerate ageing

By Leith van Onselen The Productivity Commission’s (PC) Migrant Intake Australia report, released in 2016, recommended significantly tightening parental visas and raising their price, given they are costing taxpayers an estimated $335 000 to $410 000 per adult, or between $2.6 and $3.2 billion per annual intake in present value terms (and growing): There is


Generational war declared on Labor’s franking credit reform

By Leith van Onselen Generational war has broken out of Labor’s policy to limit the refunding of excess franking credits. Australia’s leading mouthpiece for the ‘grey gouge’, Robert Gottliebsen, has summoned faux rage, declaring the policy unfair: This is a tax on battlers… And the fundamental issue is that a huge section of the non-government pensioner


Desperate Scummo to accelerate personal tax cuts

By Leith van Onselen There’s more indications today that the Morrison Government will seek to spend Australia’s temporary Budget windfall from higher than expected commodity prices on bringing forward $10 billion of ‘stage-2’ personal income tax cuts – currently scheduled to come into effect from 2022. From The Canberra Times: The tax cuts, worth up


Costs mount as Sydney’s light rail farce mushrooms

By Leith van Onselen In the wake of the massive cost blow-outs and delays hitting both the Parramatta Light Rail Project and the Eastern Suburbs Light Rail Project, the former head of Infrastructure NSW, Paul Broad, in June described the Eastern Suburbs Light Rail Project as a waste of money and a vanity project that should have never been


China crashes Australian dirt (or does it?)

Gotti says we’re getting smashed: This week’s dramatic announcement that the nation had actually achieved a budget surplus was based on high mineral revenues and a housing boom. But Australia is about to be to be taught that in minerals China gives and then China takes away, and that in housing banks gave credit but


Gotti incites faux grey outrage against Labor’s franking reforms

By Leith van Onselen Australia’s leading mouthpiece for the ‘grey gouge’, Robert Gottliebsen, has summoned faux rage over Labor’s policy to limit the refunding of excess franking credits: Bill Shorten has declared that if he is elected those cash franking credits will no longer be paid. Individuals may strongly disagree with what is effectively a


NSW Labor rejects $2b footy stadiums pork

By Leith van Onselen I’ve noted previously how the NSW State Government has hit ‘peak stupid’ in deciding to spend $2 billion to demolish and rebuild the Olympic Stadium and the Sydney Football Stadium, both of which are underutilised and whose redevelopment would deliver zero net economic benefits for the state, according to analysis by hired gun


Deloitte: Ordinary workers to shoulder bigger tax burden

By Leith van Onselen Deloitte has produced analysis arguing that the average tax rate paid by Australian workers will rise to a two-decade high 20% by 2021-21, which would be the second highest personal income tax burden in the nation’s history: “Inflation pushes people into higher tax brackets, and that’s an ungainly and unfair way


Why private health insurance is dying a slow death

By Leith van Onselen I have previously claimed that Australia’s private health insurance system is facing a ‘death spiral’ as young and healthy people (the so-called “invincibles”) continue to leave system, thus leaving a larger proportion of unhealthier, older, expensive users. If this process continues, it will force premium up further, leading to a further exodus


The real “victims” of Labor’s franking credit reforms are wealthiest retirees

By Leith van Onselen Last week, a Coalition-led parliamentary inquiry into Labor’s dividend imputation policy began public hearings, which heard a conga-line of vested interests bemoan that Labor’s proposed reforms are “unfair” and would smash “ordinary Australians” and “lower-end retirees”. However, this special pleading has already been debunked by the Parliamentary Budget Office (PBO), which released


$15b Melbourne airport rail dud gets feds approval

By Leith van Onselen Back in September, ACCC chairman Rod Sims warned state governments against accepting unsolicited bids for infrastructure projects: “The ACCC considers that state governments should only award new toll road concessions through a competitive bid process, and not following an unsolicited proposal unless there is a truly compelling reason,” Mr Sims said.


Vic Labor digs immense infrastructure black hole

By Leith van Onselen The Grattan Institute’s transport program director, Marion Terrill, has ripped into the “astronomical” transport promises made in the lead-up to the Victorian Election, especially by Labor: There’s nothing unusual about politicians promising big-ticket items to curry favour with voters, but this election the size of these commitments is astronomical: more than $170 billion


Big Four consultancies milking taxpayers for billions

By Leith van Onselen In February this year, a former Department of Defence and Business Council of Australia boss labelled the federal government’s consultancy spend “stupendous” and claimed that much of the $130 billion in federal government external spending should have been carried out by permanent public servants. And in August, the Joint Committee of


Ponzi Pallas’ Budget luck is about to run out

By Leith van Onselen The AFR has released the below chart showing the extraordinary Budget luck that has been bestowed on Victorian Treasurer, Tim “Ponzi” Pallas, who has enjoyed an $8.6 billion (14%) upwards revision in revenues since he crafted his first Budget in 2015: This has resulted in Ponzi Pallas having “23 per cent


Treasury Secretary: Strong Budget needed to bail-out banks

By Leith van Onselen The federal government’s net debt was $342 billion at the end of 2017-18, which equates to 18.6% of GDP. While this is relatively low compared with many nations, Treasury secretary Philip Gaetjens yesterday warned in a speech marking the 10 year anniversary of the global financial crisis (GFC) that debt needs