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.


Labor wants Budget to move beyond GDP

Labor’s Shadow treasurer, Jim Chalmers, is the latest to question the usefulness of Gross Domestic Product (GDP) as a welfare measure, and has called for the federal budget and Intergenerational Report to adopt broader measures of welfare: Many of you know Robert Kennedy told a Kansas audience in 1968 that GDP measures everything ‘except that


The Commonwealth must drive tax reform

Liberal MP, Tim Wilson, believes that Australia’s tax system is “broken”, and stresses the need for the states to undertake their own tax reforms: Federal Liberal MP Tim Wilson spoke out to warn people were “losing” from the “broken” and “out-of-date” federal-state tax system… Mr Wilson, chair of the House of Representatives economics committee, said:


Scotty from Marketing has no idea on tax reform

Two former heads of the Australian Treasury have united to call for the replacement of property stamp duties with a broad-based land tax: Dr Henry says the stamp duties levied by state governments on property purchases create an unfair hurdle for young aspiring homeowners. “It’s a big obstacle for first home buyers – saving for


Expats rush to beat “unjustifiably bad” CGT changes

The federal government announced in the 2017 Budget that it would remove a capital gains tax (CGT) exemption for around 100,000 expatriate Australians who sell their main residence while overseas. While the measure was projected to raise $581 million over the forward estimates, it was condemned by tax and legal experts as being “unjustifiably bad


Another commentator calls for stamp duty/land tax switch

Jessica Irvine has penned another article imploring policy makers to replace property stamp duties with a broad-based land tax: Even as young Australians can’t afford the homes they want, many older Australians say they don’t want the homes they currently have. A mismatch, of sorts… This brings us to the final strand of this story


Sports rorts affair escalates as Audit Office takes stand

Brian Boyd from the Australian National Audit Office (ANAO) has given evidence on the first day of a parliamentary inquiry into the so-called sports rort affair. Boyd said that around 43% of clubs that received grants under the Community Sport Infrastructure program were ineligible to do so by the time the funding agreements were signed.


S&P warns Recessionberg not to spend on virus

And he’s stupid enough to listen: S&P Global Ratings said today that although the effects of the ongoing novel coronavirus (COVID-19) outbreak will stymie economic growth in Australia (AAA/Stable/A-1+), they are unlikely to negatively affect the sovereign rating. The outbreak comes soon after several major natural disasters in Australia, including bushfires and floods, the combined effect of


$80b submarine pork “a national disgrace”

Last month, the Australian National Audit Office (ANAO) released a scathing report into Australia’s $80 billion future submarines project – “the largest Defence procurement in Australia’s history” – which warned that the decision not to go with an off-the-shelf design has materially raised procurement risks: The decision not to acquire a military‐off‐the-shelf submarine platform, and


Melbourne Airport talks its book on rail tunnel

Yesterday it was revealed that the Victorian Government has ditched a planned airport rail tunnel in favour of using existing lines. This has provoked an angry response from Melbourne Airport, which has demanded the tunnel go ahead: Melbourne Airport has called on the state government to reject a multi-billion airport rail plan that uses existing


Poof! Surplus gone

Via Domain: The budget surplus is almost certainly gone as economists warn the Morrison government’s run of good luck has finally ended with the coronavirus and bushfires punching holes in revenue and forcing up spending. …Deloitte Access Economics believes the virus will cut about $1.8 billion from budget revenues this financial year, with a further


Melbourne’s west lashes “disastrous” airport rail project

Lobby groups in Melbourne’s fast growing west are furious that the Victorian Government has ditched a planned airport rail tunnel in favour of using existing lines: Premier Daniel Andrews and Prime Minister Scott Morrison are believed to be moving ahead with plans to announce the $8-$13 billion project, with sources saying a dedicated airport tunnel


After RBA, Recessionberg puts stimulus cue in the rack

Several weeks ago I wrote: The formulation of the gathering catastrophe is simple. Coronavirus is loose in China. The Chinese Communist Party has declared war upon it and must win lest it jeopardise itself. As the virus explodes, the base case for that is now to progessively shut the country down for six-to-nine months. There


Australia’s retirement system needs radical reform

From The Conversation: The government’s retirement income review is being told our current tax and benefit treatment of retirement incomes is a mess. Much of financial planning industry is devoted to structuring affairs to maximise access to the age pension. The means test and other requirements that control access to it are a bureaucratic nightmare


It’s time to drop the hammer on Transurban

While residents of Sydney and Melbourne are suffering from crush-loaded roads, trains, schools, and hospitals, as well as smaller and more expensive housing, toll road company Transurban is making out like a bandit. Last year, ABC News reported that Sydney’s toll road network is the most expensive and extensive in the world, most of which


Recessionberg baffled by RBA spending call

Via The UnAustralian: The Morrison government is ­increasingly frustrated with ­Reserve Bank governor Philip Lowe’s calls for it to spend more to lift the ­nation’s flagging productivity, after a confidential cabinet briefing from the RBA boss on Monday left ministers exasperated by an absence of detailed policy ideas. Dr Lowe in a speech on ­Wednesday


Private health insurance industry faces collapse

Australian Prudential Regulation Authority (APRA) board member Geoff Summerhayes has warned that the business models of many private health insurers may not be sustainable beyond 2022. He claims factors such as the growing trend for younger people to opt out of health insurance means that some insurers may not be financially viable within three years,


Taxpayers shafted again with Sydney Metro $4b over budget

I have noted repeatedly that one of the key reasons why Australia’s high population growth (immigration) is lowering the living standards of existing residents is because of the strain that it places on infrastructure, which inevitably leads to more congestion on roads, public transport, as well as more expensive housing. Basic math (and common-sense) suggests


West Gate tunnels into bottomless pit

Yesterday, Clay Lucas’ explosive report on the West Gate Tunnel project revealed that the 1465-page agreement between the Victorian Government and Transurban contained 125 references to “contamination”: Search the West Gate Tunnel project agreement between Transurban and Victorian Treasurer Tim Pallas and you will find a thumping 125 references to “contamination” in the 1465-page document.


West Gate Tunnel bungle has taxpayers on hook for billions

The fallout from the bungled West Gate Tunnel project continues after its builders gave notice that they intend to terminate their contract with Transurban, with Victorian taxpayers likely required to bail-out the project at a cost of billions. Here’s The Age’s take: Treasurer Tim Pallas billed it as the multi-billion-dollar road deal that was too


Lifting Newstart is a policy no-brainer

The Australian Council of Social Service (ACOSS) has used its submission to the pre-Budget process to urge the federal government to increase funding for the Newstart allowance by $3.8bn. CEO Cassandra Goldie has called for Newstart to be increased by $95 a week. Welfare groups have previously sought a $75 increase, but Goldie contends that


West gate tunnel dispute escalates

A day after its builders gave notice that they intend to terminate their contract with Transurban, Daniel Andrews’ $6.7 billion West Gate Tunnel project is in chaos with the Premier threatening to tear-up Transurban’s lucrative 10-year toll extension if it does not find away to dispose of tonnes of toxic soil discovered at the build