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.
Nice work from Adam Creighton today: One of the world’s biggest ratings agencies has questioned the NSW government’s finances, as new analysis reveals the nationwide infrastructure boom is pushing combined federal and state government debts towards the $1 trillion mark for the first time. US ratings giant Moody’s called the widely praised NSW budget a
Yes, it’s Futureboom! But it’s not the RBA nor Treasury. It’s the NSW Budget: Note the wage price index and population growth. Wages are magically going to surge right alongside new waves of cheap coolies. And that’s going to keep consumption up even as house price fall: This strength has been underpinned by households—through dwelling investment
Via The Australian: Bill Shorten has announced a future Labor government would repeal the government’s $144 billion income tax plan if it passes the parliament as he confirms the party’s opposition the bulk of the package. The Opposition Leader said Labor was prepared to vote for stage one of Malcolm Turnbull’s income tax package and
Via the AFR: One Nation has declared it is not going to be a “lapdog” for the Turnbull government, sending an ominous warning as senior ministers concentrate their lobbying on Pauline Hanson to back its income and company tax cut packages during a frantic final fortnight of Parliament before the winter break and super Saturday
By Leith van Onselen The immigration-driven population boom in Sydney – which has added nearly one million people to Sydney’s population over the past 13 years and is projected to increase Sydney’s population by 87,000 people a year over the next 20 years – is the gift that keeps on giving. Last week, 9News reported
By Leith van Onselen The Australian’s Adam Creighton has penned a strong rebuke of the debate around income tax cuts, claiming that both sides of politics are looking to increase Australian’s tax burden: Voters have Hobson’s choice when it comes to tax. Both major parties are proposing to increase income tax, the Coalition only a
By Leith van Onselen Back in April, it was announced that Western Australia’s per capita share of goods and services tax (GST) would rise from $0.34 in the dollar to $0.47: At the time, the Western Australian Government was unhappy, with Treasurer Ben Wyatt attacking the increase as “yet another slap in the face to the
By Leith van Onselen Australian National University researcher, Robert Breunig, has produced some strange analysis arguing that eliminating the second highest tax bracket, as proposed by the Turnbull Government’s personal tax cut plan, would create a simpler and fairer tax system without eroding progressiveness. From The Canberra Times: An analysis of 160 million Australian tax records between
By Leith van Onselen The infrastructure being built to fix the problems caused by mass immigration continues to create headaches for Sydney residents. NSW taxpayers are already facing huge cost blowouts and delays from among other things: a claim worth more than $1 billion from the builders of Stage 2 of the WestConnex motorway that links
Recall from defense expert Brian Toohey two years ago: …everything is wrong about the Turnbull government’s decision to build 12 extremely large submarines in Adelaide. …The government’s refusal to go with an off-the-shelf design will cost more billions, because the first of new submarines won’t be operational until after 2030 and the last until almost 2060. This means the decrepit
It’s not yet the sovereign downgrade, but it’s the pre-downgrade downgrade, from S&P: • In the past two years, information has emerged on the Australian banking system that highlights lapses in governance and risk management. As a result, we are revising our previous view on the competitive dynamics and institutional framework of the Australian banking
By Leith van Onselen Australian Taxpayers Alliance (ATA) director, John Humphreys, claims the cost of the Turnbull Government’s income tax cut package has been grossly overstated and that the package will only cost about $78 billion over 10 years, compared with Treasury’s forecast of $144 billion. In particular, the Government estimates that the third stage
By Leith van Onselen This site has previously lamented the gradual denuding of Australia’s public service, which has been stripped raw by decades of government outsourcing, waves of senior redundancies, as well as a preference for governments to seek advice from paid consultants, erroneously named ‘think tanks’, and political staffers. The end result has been
By Leith van Onselen The Australian’s Adam Creighton has penned another excellent article attacking the cost of Australia’s compulsory superannuation system on the Federal Budget: The superannuation guarantee increases costs to the government, which therefore requires a higher tax burden. That’s because the cost of the superannuation tax concessions is greater than the savings to
By Leith van Onselen Last month, The Australia Institute (TAI) released research estimating that “62% of tax cuts benefits go to highest income earners”, whereas “just 7% of the benefit goes to the 30% of Australians on the lowest wages”: Now, the Grattan Institute has provided a submission to the Senate Economics Legislation Committee Inquiry into
By Leith van Onselen With the Turnbull Government still requiring the support of eight out of the 10 crossbenchers to pass its income tax cuts package in the Senate, Treasurer Scott Morrison has ruled out legislating the third stage of its tax package separately. From The AFR: Stage three would start on July 1, 2024, and
Independent Senator for South Australia, Tim Storer, has issued a media release explaining why he will oppose the second and third tranches of the Turnbull Government’s personal income tax plan: Given our substantial debt and deficit challenge, I do not believe it prudent to proceed with the full income tax plan proposed by the Government
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, has described the Eastern Suburbs Light Rail Project as a waste of money and a vanity project that should have never been started.
This is beyond reckless. It is beyond fantasy. Domainfax has the scoop: The Turnbull government’s personal income tax plan will cost $24 billion a year by the end of the decade, new figures show, in what will be the largest income tax cut in Australian history. The costings by the independent Parliamentary Budget Office commissioned
By Leith van Onselen Outgoing chief executive of Infrastructure Australia (IA), Philip Davies, has urged the federal government to proceed with a road pricing inquiry or face a revenue crisis. From The AFR: “That’s a long game and that’s a hard conversation in the community but we’d welcome seeing that inquiry,” he said. He said road
By Leith van Onselen Long-time mass immigration booster, Deloitte-Access Economics’ Chris Richardson, yesterday admitted that Australia needs to spend five times as much on infrastructure if we hope to keep up with projected “exceptional” levels of population growth. From The AFR: Mr Richardson, a partner with Deloitte Access Economics, says a “disappointingly patchy” approach to
By Leith van Onselen Economist Saul Eslake has questioned the claim that company tax cuts will create jobs after new data shows that jobs growth in the small business sector, which received the first phase of the Coalition’s company tax cut package, has lagged. From The Australian: Big business has created the lion’s share of
By Guest in Australian budget
Cross-posted from The Conversation: Does the Coalition’s tax plan favour high earners over those with lower incomes? Depending whom you listen to, the tax cuts, unveiled in last month’s federal budget, lead to either a flatter, more regressive tax system under which low-income earners will be even worse off relative to high earners, or the
The Chris Joye campaign to lift Aussie bank bonds continues today: Australia’s shrinking professional media appears to have once again completely missed the fact that the government reported a huge $9 billion budget surplus in April, which means it is theoretically possible Treasurer Scott Morrison will deliver voters a shock surplus in the current 2017-18
Some of the key changes to the economy evident in this Review include: Full-time employment grew by 3.1 per cent, significantly greater than the 1.0 per cent growth over the previous year. Hours worked increased by 3.3 per cent over the year to April 2018 compared with 1.8 per cent a year earlier.
By Leith van Onselen Finance Minister and used car salesman, Mathian Cormann, has penned a desperate article in The Australian spruiking that “corporate tax cuts are essential for Australia’s growth and prosperity”: Higher taxes on businesses in Australia compared with elsewhere puts them at a competitive disadvantage. Higher taxes make it harder for businesses to
By Leith van Onselen The Turnbull Government’s flea ridden $36 billion company tax cut package is still clinging to life with One Nation MP, Brian Burston, defying leader Pauline Hanson and supporting the legislation. From The Australian: Senator Burston told The Australian he was blindsided by Senator Hanson’s decision to withdraw support for the package,
By Leith van Onselen The small business lobby has demanded that Labor clarify whether its will abandon scheduled tax cuts for companies with turnovers of up to $50 million. From The AFR: The Senate has already legislated the first three years of the 10-year company tax cuts which ensures businesses with turnovers capped at $50
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By Leith van Onselen History never repeats but it sure does rhyme. Upon being elected in March 1996, the Howard Government commenced a program of cutting spending and jobs across public sector agencies, only to then hire an army of consultants and contractors. The grand irony from the Howard Government experience was that many of
