By Leith van Onselen The Turnbull Government plans to extend GST to imported online goods valued under $1000, effective from 1 July 2017 – a move Treasurer Scott Morrison claims will “establish a level playing field for our domestic retailers”. However, the Labor Party has called for a 12-month delay to ensure that the legislation
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.
Via Domainfax: A federal government agency has handed its public servants scripted lines, to be recited in “BBQ conversations” and other “social settings”, about its controversial move out of town. Workers at the pesticides authority have been given a long list of “talking points” to use on friends or family asking about the authority’s forced relocation from Canberra to Armidale in
Via Peter Martin: The May budget is set to forecast a surge in economic growth, much lower unemployment and a rebound in inflation, according to a ‘sneak preview’ released by the International Monetary Fund Wednesday morning in Washington. The Fund’s updated forecasts for Australia contained in its annual World Economic Outlook are much more upbeat
Cross-posted from The Conversation: For some time, the largest single component of federal government spending has been social security and welfare. In the last federal budget it made up an estimated 35.2% of total expenses and this was projected to rise to 37.5% by 2019-20. Given this, it’s not surprising that it’s also has been
By David Collyer, cross-posted from Prosper Australia: The Petroleum Resource Rent Tax has been a successful revenue-sharing device since 1987, delivering well over $33 billion to Consolidated Revenue, derived entirely from the economic rents of resource extraction with no harm to producers. It has never deterred exploration or hindered output. Treasurer Scott Morrison commissioned a
By Leith van Onselen There are ongoing calls for a rail link to be built to Melbourne Airport. Earlier this month, Prime Minister Malcolm Turnbull threw his support behind the proposal and confirmed that funding would be included in the May Budget: “The Napthine government took steps towards a rail line to Tullamarine and it’s
Right on cue, the sell side downgrades to big miners have begun. Citi is out today with profit and price outlook cuts to FMG while Macquarie has cut WHC. Goldman is now forecasting an ongoing profit downgrade cycle: The end of the upgrade cycle. BHP, RIO and FMG have benefitted from a considerable earnings upgrade
Just weeks out from the 2017 Federal budget Gunnamatta spoke with David Llewellyn Smith and Leith van Onselen about the economic backdrop framing budget decisions, as well as the dynamics of Australia’s key commodity exports and the implications this has for the economic outlook, employment, incomes growth and the housing market. With the federal government and
From The Idiots: Immigration Minister Peter Dutton has become the latest cabinet minister to indicate he opposes a proposal which would see young people given access to their super to buy a house. Ministers have been at odds over the proposal ahead of a meeting of the government’s razor gang in Sydney today. Prime Minister
By Leith van Onselen Following scandal after scandal, and a $3 billion Budget blow-out over four years, the Turnbull Government in December passed a bill through the Senate imposing stricter eligibility criteria for Vocational Education and Training (VET) courses, as well as capping student loans. Now, two of Australia’s biggest private VET providers – Careers
By Leith van Onselen You heard it here first. Back in February I explained why the Turnbull Government would include some sort of first home buyer (FHB) bribe in the May Budget. Today, Michael Sukkar – the minister assisting in the development of a housing affordability package – all but confirmed that a FHB bribe
From The ABC a few days ago: Federal Cabinet formally examined the impact of tax breaks on Australia’s booming housing market in early 2016 but decided not to act, an ABC investigation has revealed. …instead of making changes last year, the Coalition embarked on a blistering campaign against Labor’s plans to curb property tax concessions. That
As the worst government in living memory puts the final touches on its centerpiece budget, it is about to mugged by reality. UBS today offers a nice take on what’s looked for today: A modest ~$10bn better fiscal profile, helped by better commods & profits Treasurer Morrison brings down the 17/18 Commonwealth Budget on May
By Leith van Onselen The Centrelink robo-debt fiasco is one of the bigger examples of Budget mis-management under this Coalition Government. Treasurer Scott Morrison promised Australians that Centrelink’s new data matching software would deliver more “accurate and appropriate income testing” by substituting manual checking of data for a computerised algorithm. It would also supposedly “cut
From CJ today: In unusually frank remarks, Morrison argued that world-beating capital buffers were “especially important” because “our banks source a considerable share of their funding offshore, reflecting Australia’s position as a net importer of capital, and [because] our banks provide the bulk of the domestic credit that local firms and households receive”. Morrison will
By Leith van Onselen Do-Nothing Malcolm gave a keynote address last night at The Sydney Institute’s 2017 Anniversary Dinner, whereby he pushed the case for further company tax cuts, claiming that the benefits will flow to workers [my emphasis]: Most of the burden of high company taxes is borne by workers because high taxes discourage
Recall MB’s recent advice to the incoming WA government: Here is what he’s inherited in the Budget forecasts: The key inputs are all hilariously inflated still. In order, population growth and consumption are supposed to rebound but on what? Population growth is down to 1% and falling fast versus a projected 1.3% and rising: And wages
From David Uren today: Since gaining office in 2013, the Coalition government’s strategy for repairing the budget has had three elements: any new spending will be offset with savings measures; improvements in the budget resulting from strengthening of the economy will be banked, not spent; and the return to surplus will be assisted by savings
By Leith van Onselen Yesterday, Australia’s fake Treasurer, Scott Morrison, told us to ignore modelling on the company tax cut and instead go with ‘the vibe’: Federal Treasurer Scott Morrison has declined to detail the economic modelling of his Government’s company tax cuts because he says it does not matter to people in the pub…
What a tin-eared areshole this bloke is. Let’s recall what Do-nothing Malcolm wrote in 2005, when he labelled negative gearing and the capital gains tax (CGT) discount a “sheltering tax haven” and “tax avoidance” that it is “skewing national investment away from wealth-creating pursuits, towards housing”. And let’s recall what Do-nothing Malcolm said in 2014: “Looking
By Leith van Onselen In a scene reminiscent of the 1990’s hit, “The Castle”, Treasurer Scott Morrison has effectively told us to ignore modelling on the Coalition’s company tax cut plan and instead go with ‘the vibe’. From The ABC: Federal Treasurer Scott Morrison has declined to detail the economic modelling of his Government’s company
By Leith van Onselen Robert Gottlebsen (“Gotti”) has truly drunk the Kool Aid today, blaming recent sensible changes to superannuation and the Aged Pension for further inflating housing values: Over the Christmas break two groups of people made the same decision—-that Australian housing was one of the best places in the world to invest. And
By Leith van Onselen The 2017 pre-Budget submission from the body representing Australian largest infrastructure firms, Infrastructure Partnerships Australia (IPA), has urged the Federal Government to allocate at least $5 billion to a revived asset recycling scheme. The program provided the states with financial incentives to reinvest the proceeds of asset sales in infrastructure projects,
By Leith van Onselen Coalition in-fighting over whether to cut the capital gains tax (CGT) discount in the upcoming Budget continues to fester, with Finance Minister Mathias Cormann still trying to suppress backbench pressure to reform the concession. From The AFR: [Cormann] is fighting internally against proposals to curb the capital gains tax deduction for
Prepare for a mighty wail from the West, via Moody’s On 24 March, the Government of Australia (Aaa stable) announced a revision to annual equalization grant allotments for states and territories in fiscal 2018, which ends 30 June 2018. The Commonwealth collects goods and services taxes (GST) nationally and remits them in their entirety to