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.
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MB often works with international hedge funds on the Aussie economy. I recall the reaction of one from the US when he discovered that, unlike US fixed rate mortgages, Australian mortgages are all floating rate. He declared immediately: “Households must all pray for the next recession!” Why? Because that meant cheaper repayments for the overwhelming
The tax cuts are clearly doing bugger all, entirely predictably, so what’s the answer to a flagging economy? More of the same of course! Via AFR: Labor, had it won, would have offered an income tax cut for people earning up to around $120,000 but would not have proceeded with the Coalition’s stage two and
From perhaps Australia’s greatest ever economic hypocrite, via Domain today: Former treasurer Peter Costello has blamed ultra-low interest rates for fuelling global political extremism and accused the Reserve Bank of focusing on global currency movements rather than the Australian economy when setting monetary policy. Speaking at the Citi Australia and New Zealand Investment Conference 2019
L-plate Treasurer Josh Recessionberg continues down his self-destructive path today. Via the AFR: In an interview with The Australian Financial Review before flying to an International Monetary Fund meeting in Washington DC, Treasurer Josh Frydenberg said restoring the budget to surplus was not a vanity exercise but integral to the government’s plan to buttress the
In September last year, ACCC chairman Rod Sims warned state governments against accepting unsolicited bids for infrastructure projects: “The ACCC considers that state governments should only award new toll road concessions through a competitive bid process, and not following an unsolicited proposal unless there is a truly compelling reason,” Mr Sims said. “Accepted unsolicited proposals
Australia’s chief statistician, David Kalisch, claims that a decade of funding cuts has hampered the Australian Bureau of Statistics’ (ABS) capability, and warns that funding cuts would result in less accurate statistical reporting: The cumulative cuts, at a time when demand for information and data was growing sharply, were a “conundrum” for the ABS which
Via CBA today: Australia’s key commodity prices to ease from here ■ We see Australia’s key commodity prices moving lower from here. ■ But despite lower commodity prices, Australia’s external sector should have another good year as export volumes continue to lift and the lower Australian dollar boosts our competitiveness. ■ An expected decline in
David Bassanese has a whinge about the RBA: …so far at least, lower official interest rates have gone down like a lead balloon with households and business. Key measures of both business and consumer confidence are now lower than before the first RBA rate cut. Retail sales are still barely growing, and anecdotes from retailers
He did nothing all of the time and when goaded into movement did stupid, via the ABC: The promised Snowy Hydro 2.0 project will be an expensive white elephant according to a leading energy expert. “Here is a project that is likely to cost five times more than the then prime minister [Malcolm Turnbull] said
The Productivity Commission (PC) is reviewing the tax breaks that are available to individuals and employers in remote parts of Australia, and it is preparing a final report on the issue. The zone tax offset (ZTO) and remote area tax concessions were introduced in the 1940s and have remained largely unchanged. Two-thirds of those currently
Three months ago, the Grattan Institute released alarming research showing the rapid expansion of migrant workers across the Australian economy, which Grattan labelled “predominantly low-skill migration”. Grattan also noted that many of these workers appear to work for below-market rates, and that this is having a detrimental impact on the wages of younger and lower-skilled
Oh yes, via the AFR: Treasurer Josh Frydenberg has rejected a renewed push by NSW to bring back federal incentives for state asset recycling, a privatisation scheme designed to help fund large infrastructure projects, saying the state’s budget is in better shape than the Commonwealth’s and needs no more handouts. Speaking ahead of today’s meeting
NSW Treasurer, Dominic Perrottet, is leading renewed calls for the federal government to reinstate the Abbott Government’s “asset recycling” program to provide states with financial incentives to reinvest the proceeds of asset sales into new infrastructure projects: On Thursday, the state Treasurers will meet among themselves and Mr Perrottet said he would seek support for
Via the AFR: Shayne Elliott, the chief executive of one of the country’s biggest banks, has called on federal Treasurer Josh Frydenberg to convene a summit to discuss the broader economic implications of zero per cent interest rates and quantitative easing. Mr Elliott, who is the CEO of ANZ Banking Group and chairman of the
Via Domain: NSW and Victoria are calling on Treasurer Josh Frydenberg to bring forward infrastructure projects as treasurers head to Canberra amid deepening concerns about the state of the economy despite falling interest rates and income tax cuts. Ahead of a Friday meeting of the nation’s treasurers and as evidence grows that business and consumer
Stephen Duckett – the director of the health program at Grattan Institute – has lashed calls from the private health insurance industry for the government to lift funding by another $1.2 billion: Last week’s call by Private Healthcare Australia, the private health insurance industry lobby group, for another $1.2bn handout shows the message has not
Amid ever growing pressure to lift Australia’s Newstart rate, which is among the lowest in the OECD, the Morrison Government has hit back, claiming that its focus is on “reducing debt” and Budget repair. From The Guardian: In a submission to a Senate inquiry into Newstart, the government said it intended to “focus on strengthening
The Australian’s James Kirby has penned another article bemoaning that Australians on the Aged Pension are being penalised by the RBA’s interest rate cuts and is arguing for the deeming rate to be cut even further: With the official cash rate suddenly at historic lows of just 0.75 per cent… pensioners are already up in
The federal government has identified a number of legislative priorities when Parliament resumes on 14 October. However, analysis suggests that the Coalition may lack the numbers to pass up to seven out of eight bills in the Senate, including the Ensuring Integrity Bill and a religious discrimination bill. The proposed first-home loan deposit scheme is
KPMG has used its submission to a Senate inquiry to call for an overhaul of the Newstart allowance, arguing that it should be benchmarked against both 50% of median household income and 50% of the minimum wage, and should be at least 80% of the combined Age Pension plus Pension Supplement. The accounting firm’s chief
The percentage of Australians between the ages of 20 to 39 with private health insurance has fallen from 40% to 34% over the past five years. During the same period, older Australians have been claiming more on than their health insurance than ever. Private Healthcare Australia has put forward a number of proposals to the
Via Westpac: The August retail update showed sales up 0.4% in the month. While this was broadly in line with the consensus forecast of a 0.5% gain it is a disappointing result given the scale of the policy stimulus boost to disposable incomes. The combined effect of income tax offset refunds and interest rate cuts
The Dan Andrew’s Government’s $50 billion Suburban Rail Loop was announced just prior to last year’s Victorian State Election. It was never subjected for assessment by Infrastructure Australia or Infrastructure Victoria. There is no business case. And Victoria’s transport department wasn’t even told about the plan for fear that it would attempt to block the
Social services organisations have called for an independent commission to be set up to determine the rate of payment for Newstart recipients: Calling for an increase to the payment in their submission, groups including Uniting Communities, the Combined Pensioners and Superannuants Association and the Consumers Health Forum said a social security commission should help set
The Australian’s Adam Creighton has penned an excellent article attacking the Morrison Government’s decision to exclude the ‘family home’ from being considered in the upcoming retirement incomes review: Treasurer Josh Frydenberg ruled out “ever” including the principal residence in the eligibility test for the pension. If the age pension is going to be means tested,
Not that they were ever going to do much anyway. The principle of Keynesian stimulus is to provide public activity when the private sector retrenches, as it is now. Tax cuts in such circumstances just get saved. Via Domain: The size of the Morrison government’s first round of tax cuts has fallen well short of
Over many years, we’ve warned that the enormous pot of money on offer under the $22 billion National Disability Insurance Scheme (NDIS) would spawn a whole range of middle-men, administrators and providers seeking to cash in, leading to significant waste, or worse fraud. We’ve seen this before with the rorting of the private Vocational Education
If it didn’t matter so much it would be amusing watching L-plate Treasurer Josh Recessionberg make no sense, via the AFR: Treasurer John Frydenberg has endorsed Future Fund chairman Peter Costello’s call that further interest rates cuts won’t boost the economy all that much and insisted the government is developing a productivity agenda. “Peter Costello
Via the PBO: This fourth edition of the Parliamentary Budget Office’s (PBO’s) medium-term projections report shows that ongoing government spending restraint, combined with lower public debt interest payments, are driving an improving fiscal position… The underlying cash balance is projected to improve over the next decade to a surplus of 1.6 per cent of gross
Via Domain: Future Fund chairman Peter Costello has downplayed the economic impact of any future interest rate cuts, saying deep-seated or “structural” reforms were instead needed to promote growth. With financial markets putting roughly an 80 per cent chance on an official interest rate cut next week, Mr Costello on Thursday said lowering the cash
