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.

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Barnaby Joyce robot coming to a BBQ near you

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

14

Run for your life: IMF upgrades Australia

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

11

‘Blowout’ in welfare spending is largely a myth

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

13

Do-Nothing Malcolm prepares to squib on PRRT

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

36

MB Radio: Rort of the Elites

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

12

Coalition cuts funding to VET rorters

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

42

Sukkar confirms first home buyer bribe will be in Budget

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

7

Negative gearing reform dead, CGT lives

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

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Ombudsman: Centrelink’s robo-debt system failed

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

4

Joye: Morrison has saved the AAA (NOT)

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

1

EX-RBA boss rubbishes company tax cuts

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

13

WA Labor follows MB script on budget disaster

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

6

Coalition’s company tax brain fart a ’rounding error’

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…

5

Do-nothing Malcolm the last holdout on CGT reform

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

13

Morrison: Don’t look at company tax cut modelling. Go with ‘vibe’

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

8

Doddering Gotti blames pension reforms for housing bubble

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

6

Infrastructure partnerships: bring back ‘asset recycling’

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,

11

Coalition civil war over CGT discount mounts

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