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.
By Leith van Onselen The business lobby’s new found propaganda drive surrounding company tax cuts continues in earnest today, with Business Council of Australia (BCA) president, Grant King, penning the following drivel today in The AFR: Much of the political debate about important changes Australia needs to make is focused around one question: what is fair? Never
By Leith van Onselen It’s the policy that just won’t die! Members of the Business Council of Australia’s (BCA) board and the CBA’s chief have once again called for the corporate tax rate to be reduced in order to lift the nation’s economic growth rate to at least 3%. They argue that the economy needs
Cross-posted from The Conversation: There is very little, if anything, to commend discretionary trusts. The benefits they bring, and it’s hard to see many, are dwarfed by their destructive and damaging features. Trusts are usually used to allocate money to members of a group, usually a family. Under a discretionary trust, the only way a
By Leith van Onselen After confirming over the weekend that Labor would target trusts, shadow treasurer Chris Bowen has stated that Labor would still allow people to use trust structures if it wins the next federal election. However, it will crack down on the use of trusts as vehicles to reduce tax liabilities, although there
At The Australian: The federal government has launched a war on aggressive negative gearing strategies to depreciate the value of second-hand household items to save on tax, including air-conditioners, ovens, carpets and pool equipment. Draft legislation released by the federal Treasury for the first time reveals in detail sweeping proposed changes to rules on deductions
By Leith van Onselen Labor leader, Bill Shorten, confirmed over the weekend that the party would target trusts, which it views as a tax shelter favouring the wealthy. From The AFR: Opposition Leader Bill Shorten will detail a Labor clampdown on trusts and other tax minimisation vehicles… Mr Shorten confirmed the push against trusts on Sunday…
By Leith van Onselen At the same time as Labor is crowing about rising inequality, Prime Minister Malcolm Turnbull confirmed yesterday that the Coalition would push on with its pledge to cut the company tax rate to 25% for all companies. From The Australian: [The Prime Minister] turned attention to the government’s plan to cut
By Leith van Onselen In the year leading-up to the Turnbull Government announcing its company tax cut, I frequently argued that it would have minimal impact on Australian business owners and shareholders because of Australia’s dividend imputation system. For example: Whether company tax cuts are extended to $10 million turnover businesses or $50 million turnover
By Leith van Onselen The Australian Labor Party’s national conference will be held in late July, and it is rumoured that the left faction is seeking the re-implementation of an inheritance tax. From The Australian: Several left-aligned branches support the introduction of a national inheritance tax to address the growing divide between rich and poor:
It appears Treasury is the process of slaying another gormless Treasurer, via The Australian: Scott Morrison will today launch a strident defence of the government’s fiscal strategy, warning that an earlier than planned return to budget surplus risks dampening an economy that is gathering momentum for the first time in almost a decade. The Treasurer
Cross-posted from The Conversation: Vacant housing rates are rising in our major cities. Across Australia on census night, 11.2% of housing was recorded as unoccupied – a total of 1,089,165 dwellings. With housing affordability stress also intensifying, the moment for a push on empty property taxes looks to have arrived. The 2016 Census showed empty
By Leith van Onselen In July last year, ABC’s The Business and Michael West featured an extraordinary raft of allegations from a 32-year veteran industry insider turned whistleblower, George Rozvany, who claimed that multinational tax avoidance was “out of control” and cost the Budget up to $50 billion dollars a year in lost revenue. Rozvany claimed
By Leith van Onselen On Friday afternoon, The AFR posted a series of articles warning that the collapsing rates of home ownership among younger cohorts could ultimately cripple Australia’s retirement system. Consider first, the below article by Sally Patten and Jacob Greber: A steady slide in home-ownership rates is building up a fresh demographic headache
By Leith van Onselen I noted a few weeks back how a wide disconnect has opened up between the pay rises being received by federal politicians and senior bureaucrats compared with the rest of the population. This disconnect is shown clearly in the latest wages price data from the ABS, which showed public sector wages
By Leith van Onselen I have said it before and I will say it again: a university degree in Australia used to mean something, but no longer does. It used to be that to gain entry to a decent course at a decent institution, students were required to work hard at school and gain a
By Leith van Onselen Environment Minister, Josh Frydenberg, has moved quickly to hose down reports the government is planning to introduce a new “carbon tax” on cars that will see the price of some popular vehicles soar by up to $5000. From The Canberra Times: The Department of Infrastructure and Regional Development has released proposed
By Leith van Onselen Last week it was revealed in The Australian that a draft tax ruling issued by the Australian Taxation Office (ATO) in March 2017 could allow “passive” family investment companies to claim tax refunds and deductions, opening the door for wealthy families to claim back hundreds of millions of dollars in tax
By Leith van Onselen In 2012, tobacco giant Philip Morris launched legal action against Australia’s plain packaging cigarette laws, seeking financial compensation for lost sales and profits under an investor-state dispute settlement (ISDS) clause contained in an obscure investment agreement with Hong Kong. Here’s the Productivity Commission’s explanation of this action via its Trade and
The Office of the Chief Economist, formerly BREE, has done a reasonable job of slashing the outlook for Australian dirt earnings below Budget forecasts, but not enough. First, iron ore: The iron ore price fell sharply in the June quarter, at one point reaching a 12-month low of US$47 a tonne (FOB Australia) in mid-June,
By Leith van Onselen Earlier this week, Australian Tax Office (ATO) Commissioner, Chris Jordan, announced a crackdown on tax returns by individuals, noting that some 6.3 million people – or roughly half of workers – make claims for expenses relating to clothing or laundry when they have no right to do so. Mark Chapman –
By Leith van Onselen Analysis of data from the Parliamentary Budget Office (PBO) estimates that 7.3% of Australians – or nearly 1.2 million people – will be paying the highest marginal tax rate in 2028, compared with just 3% in 2015. The PBO data also shows that the Federal Government’s total income tax revenue will
And pretty much everyone else as well, from Tax Commissioner Jordan: In his Wednesday address, Mr Jordan said approximately 6.3 million Australians claimed a $150 tax deduction for clothing expenses, totalling $1.8 billion. He questioned whether people knew they were not simply entitled to it. “That would mean that almost half of the individual taxpayer
By Leith van Onselen The Turnbull Government announced on Monday that it would expand its controversial Youth-Jobs PaTH program – to prepare, trial and ultimately hire young Australians – into the retail sector, which has driven a strong push-back from the union movement, Labor and The Greens. From 9News: Up to 10,000 internships will be
By Leith van Onselen Yesterday, it was revealed in The Australian that a draft tax ruling issued by the Australian Taxation Office (ATO) in March 2017 could allow “passive” family investment companies to claim tax refunds and deductions, opening the door for wealthy families to claim back hundreds of millions of dollars in tax refunds
By Leith van Onselen It has been revealed that the Federal Government’s self-assessed Research and Development (R&D) Tax Incentive scheme, which provides tax rebates of up to 43.5% for companies that invest in R&D, has been exploited by fraudsters, former bankrupts and other dubious individuals. From The Canberra Times: The Research and Development (R&D) Tax
