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 With Australia’s Senate all but certain to defeat the Turnbull Government’s Bill to lower the tax rate for all companies with turnovers above $50 million by 2026-27, Bluescope chief Mark Vassella has called on the Government to allow companies to write-off new investments. From The AFR: Speaking on ABC radio, Mr
By Leith van Onselen Labor has backed the Turnbull Government’s proposed broadband tax for residential and business users of non-NBN services. From IT News: The tax, which is officially called the regional broadband scheme (RBS), would see some 385,000 residential and business users of “NBN-equivalent” fixed line services hit with a $7.10 per month fee.
By Leith van Onselen The Turnbull Government has passed legislation to make university students repay their loans at a lower threshold has passed the Senate. From News.com.au: University students will have to pay back student loans when their earnings hit $45,000 under draft laws which have cleared the Senate. How much students can borrow from
By Leith van Onselen While ordinary Australian workers in the private sector are being put through the wringer, the number of people employed by the Reserve Bank of Australia (RBA) has increased from 800 in 2007 to almost 1,400, whereas the RBA governor’s total remuneration package in 2016-17 was $931,000, with around 150 other senior
By Leith van Onselen While the Turnbull Government continues to pursue suicidal company tax cuts on the faux promise of boosting ‘jobs and growth’, New Zealand’s Tax Working Group (TWG) – which is due to release its interim report to New Zealand’s Labour Government in the next month – has all but rejected the idea.
By Leith van Onselen Despite it playing a key role in the Coalition’s poor showing at last month’s ‘Super Saturday’ bi-elections, the Turnbull Government over the weekend vowed to take its full tax cut package to the upcoming Federal Election. From The Guardian: Scott Morrison has defended the government’s business and personal income tax cuts
With the royal commission showing that bank staff are busy working out how to keep billing dead customers, or busy coming up with reasons to explain why they have charged fees for services not provided, its no wonder that there isn’t enough time to train staff in Australia properly: No. 1 by a country mile!
By Leith van Onselen After the Senate cross-bench yesterday extended an olive branch to the Turnbull Government, and offered to bring forward tax cuts for businesses with turnover of less than $50 million, Finance Minister Mathias Cormann has signalled the Government will seek passage of its full company tax cuts package through the Senate by 23 August,
By Leith van Onselen With the Turnbull Government seeking to pass its full company tax cuts package in the Senate when parliament resumes in mid-August, which faces defeat by the Senate cross-bench, One Nation and Centre Alliance senators have signalled that they are willing to support any proposal to bring forward tax cuts for businesses
By Leith van Onselen The conga-line of groups calling for a lift in Australia’s pathetically low Newstart Allowance for unemployed workers (the ‘dole’) continues to grow. In recent times, we have witnessed a huge cross-section of industry and welfare groups, politicians both past and present, academics and commentators all calling for Newstart to be lifted,
By Leith van Onselen Two articles in the mainstream media today highlight the divergent views on Australia’s higher education system. The first, and article published today by The AFR, features comments from professor Stephen Parker at KPMG calling for a return to Australia’s demand-driven system: Chronic labour shortages for technicians and trade workers and more
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
By Leith van Onselen Back in April, Labor pledged that if it wins the upcoming federal election it will amend the GST so that it no longer applies to women’s sanitary products, like tampons. Now the Turnbull Government has followed suit: In an interview with The Saturday Telegraph, Mr Morrison called the tax an “anomaly”,
By Leith van Onselen The Australian Institute (TAI) has begun a new project named “Revenue Watch”, which will be repeated for every big business financial report that is released during reporting season and aims to pressure the Turnbull Government over its plan to cut company taxes from 30% to 25%. TAI’s first report under this
By Leith van Onselen Infrastructure Partnerships Australia chief executive, Adrian Dwyer, has joined the conga-line calling for Australia to replace its fuel excise and registration system with direct road user charges: Along with vehicle registration fees, the federal government’s largest source of transport-related revenue is the fuel excise. It collects 41 cents in tax on
By Leith van Onselen The company tax cut farce has rolled on today, with Treasurer Scott Morrison playing down internal divisions within the Coalition and talking up the policy: Mr Morrison said “people are expressing confidence in the policy”, despite some in the coalition calling for it to be dumped… Mr Morrison said the government
By Leith van Onselen Back in May, TAFE Directors Australia CEO, Craig Robertson, accused the federal government of acting like a “pay-day lender” when it comes to the loan fee it imposes on TAFE students. Robertson noted that university students do not have to pay a loan fee, and that the government treats vocational education and
By Leith van Onselen Treasurer Scott Morrison yesterday doubled down on the Turnbull Government’s company tax cut policy despite it playing a role in the Coalition’s poor showing at Saturday’s bi-elections: Treasurer Scott Morrison says the government will push ahead and try to legislate its company tax cuts, despite internal pressure to dump them. “That’s
By Leith van Onselen In late 2015, the NSW Government stupidly implemented controversial vocational training reforms that will force TAFE to compete with private sector providers for half of its funding. This came despite numerous reports of widespread rorting by private colleges, costing taxpayers billions. Yesterday, Fairfax reported that the NSW Government has inflicted $130 million
Front page of the AFR today: Sorry – no R&D grants because we need the money so that we can give tax cuts to companies so that they can spend more on R&D (disclaimer: more R&D will only occur if there is enough cash is left after paying higher dividends, performing more buybacks and awarding managers bigger
By Leith van Onselen After Tony Abbott appeared on Radio 2GB yesterday calling for the Turnbull Government’s company tax cut package to be axed, Coalition MPs appear to be splintering. From The AFR: While the intention is to secure the passage of the full remainder of the tax cut package, and Finance Minister Mathias Cormann believes he can still win over One Nation, there
By Leith van Onselen At the same time as the Turnbull Government is endangering the Great Barrier Reef via its support of Adani’s mega coal mine in the Galilee Basin, the Prime Minister personally approved $444 million in funding for the tiny Barrier Reef Foundation without receiving an application and without going through proper processes.
By Leith van Onselen Ever since the Turnbull Government announced its company tax cut package in the 2016 Federal Budget, MB has been opposed on the following grounds: Foreign owners/shareholders would receive the lion’s share of benefits because they are not subject to dividend imputation; The cost to the Federal Budget would be enormous (around $4
By Leith van Onselen If you ever want a classic example of why Australia needs to implement a broad-based land value tax (LVT), look no further than the following, via Domain: Politicians’ promises for new rail lines can send property prices into overdrive, experts say, with real estate in Mernda surging after tracks were laid. Next month,
By Leith van Onselen It says a lot about the ineptness of Prime Minister Malcolm Turnbull that a man renowned for having a tin ear – Tony Abbott – has a far better grasp of the realpolitik, and is urging the Coalition to dump its corporate tax cut plan in favour of reducing immigration: “There are
By Leith van Onselen I reported Friday how the NSW Government had been caught explicitly demanding that companies bidding for a big IT contract employ one third of its workers from India to keep costs low, despite NSW wages growth running near all-time highs: Over the weekend, more details of these shady deals emerged via The Australian:
By Leith van Onselen The weekend’s ‘Super Saturday’ bi-election results should be viewed as a kind of referendum on the Turnbull Government’s company tax cut package. This is because Labor campaigned heavily against the tax cuts, arguing instead that the money would be better spent on health and education. The fact that Labor stormed it
By Leith van Onselen If you want a textbook example of how the Australian Treasury has become corrupted, look no further than its analysis on the impact of immigration on the Federal Budget, as reported over the weekend in Fairfax [my emphasis]: There were 162,000 permanent visas approved in the 12 months ended June 30,
By Leith van Onselen Australian governments’ pretend concern over Australia’s universally weak wages growth (see above chart) has been exposed again, with the NSW Government explicitly demanding that companies bidding for a big IT contract employ one third of its workers from India to keep costs low. From The Daily Telegraph: Secret tender documents obtained by
By Leith van Onselen While the Turnbull Government and the Business Council of Australia (BCA) continue to push the Senate to lower Australia’s company tax rate to 25% from 30%, on the grounds that it would boost investment and wages, the impact from the recent US corporate tax cuts has clearly missed American workers and
