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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The Grattan Institute has release a report entitled “A place to call home”, which calls for the establishment of a $20 billion social housing future fund. Below is the blog post explaining the proposal followed by my response: Australia has a housing crisis. Australians are spending more of their incomes on housing than in the
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Labor leader Anthony Albanese has shelved plans to sell the NBN to Telstra and has instead promised to spend $2.4 billion to boost the fibre rollout to an additional 1.5 million households by 2025: Of the 1.5 million additional premises which will have faster access to fibre, almost half, or 660,000 homes and businesses, will
Analysis of corporate disclosures published in The Australian shows that more than 400 listed companies in many sectors received $3.7 billion in JobKeeper payments: The extent of the payments reached into every part of the economy with names such as gas producer Beach Energy ($7.6m), jobs website Seek ($17.2m), gambling machine manufacturer Aristocrat Leisure ($16.1m),
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The AFR’s Joe Aston has continued his assault against the Morrison Government’s JobKeeper waste, this time rubbishing the Australian Treasury’s paper defending JobKeeper overpayments. Aston claims that the actual level of ‘waste’ is closer to $40 billion, not the $27 billion claimed by Treasury: All of the major newspapers dutifully reported that between April and
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For years MB has lamented how Australia’s public service has been stripped raw by decades of government outsourcing, waves of senior redundancies, and a preference for governments to seek advice from paid consultants. The end result is that the “frank and fearless advice” that the public service was once renowned for has vanished, replaced by
