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.
By Leith van Onselen Overseas retailers that sell inexpensive products to Australians recently had to start paying the goods and services tax (GST). The new impost collected $81 million in its first quarter of operation, significantly higher than the $17.5 million that had been forecast by Treasury. From The AFR: Governments have collected $81 million,
By Leith van Onselen Chief economist for The Australia Institute, Richard Denniss, has penned a brilliant article explaining why Labor’s franking credit reforms are justified: Some of the wealthiest Australians pay negative tax and still get to call themselves self-funded… Most self-funded retirees have been receiving enormous amounts of other people’s money for a long
By Leith van Onselen It was dubbed the “biggest public policy scandal in Australian history: the systematic rorting of the vocational education and training system (VET)”. It was the reckless policy first introduced by the Howard Government and then expanded by the Gillard Government, which gave private VET providers virtually unregulated access to government subsidies for
By Leith van Onselen The Australian Taxation Office’s (ATO) has collected an extra $7.7 billion in unpaid tax liabilities since July 2016 over the past two years through its tax avoidance taskforce. In particular, 44 multinationals have changed their business models in order to meet their Australian tax liabilities, whereas $4.7bn worth of unpaid tax liabilities have
By Leith van Onselen Josh Lees has penned an excellent article, entitled The road that ate Sydney, which describes the financial misery inflicted on Western Sydney residents by the WestConnex toll road: Once WestConnex is completed, Sydney, already one of the most expensive cities in the world, will have 14 toll roads and be the
Via the Kouk today: Word has it that the framing of the budget, due to be handed down by Treasurer Josh Frydenberg the day after April fools day (and around 6 weeks before the election), is more problematic than usual. Problematic because there is some mixed news on the economy that will threaten the current
By Leith van Onselen In late 2017, the Victorian Labor Government completed a shady $6.7 billion deal with Transurban to build the West Gate Tunnel Project, which will see Transurban contribute $4.4 billion towards the cost in exchange motorists paying $15 billion in additional tolls on CityLink until 2045. Former Premier Jeff Kennett described the
From Treasury genius Phil Gaetjens this morning: Treasury Secretary Philip Gaetjens has warned that “falling house prices could also cause consumer spending to be weaker than forecast” and said “care must be take” on mortgage broker reforms. Mr Gaetjens told an estimates committee that government needed to remain fiscally disciplined at a time where debt
By Leith van Onselen The NSW Office of State Revenue has released stamp duty data to January, which reveals a $1.4 billion (20%) decline over the past year and a $1.6 billion (22%) decline since stamp duty receipts peaked in October 2017: The latest retracement in stamp duty receipts follows a sharp 17% decline in
By Leith van Onselen The Coalition Government has been a curse for Australia’s unemployed. In addition to refusing to lift Australia’s disgracefully low Newstart Allowance: The Coalition’s $65 million a year Work-for-the-Dole program has been an unmitigated failure, whereas its Youth-Jobs PaTH program has become a slave labour scheme in disguise. Now we can add
By Leith van Onselen With just over a month until the NSW Election, it’s raining pork. From The Australian: NSW Premier Gladys Berejiklian [is] making more than $6 billion worth of promises in recurrent spending so far as she seeks to buy her way to a third term of Coalition government. Labor has matched most
By Leith van Onselen Last month, the Victorian Government called for a review of entry requirements into Australian universities after growing evidence had emerged that foreign students with poor English language proficiency are badly eroding education standards and placing undue strain on lecturers and university staff. This was immediately followed by academics admitting to Fairfax that
By Leith van Onselen With a veritable conga-line of analysts calling on the federal government to write-down the value of the National Broadband Network (NBN) by $20 billion in order to make the wholesale costs low enough for telcos to remain profitable and to provide customers with competitively priced high-speed internet, ACCC head Rod Sims
By Leith van Onselen The Australian Institute’s chief economist, Richard Denniss, has questioned the obsession with cutting taxes, especially for the wealthy, claiming it fails economics 101. From The Guardian: Bill Shorten’s ALP are promising to close tax loopholes, collect tens of billions of dollars in additional revenue and spend tens of billions of dollars
By Leith van Onselen The NSW Government has reportedly rolled-out the second phase of its $1.1 billion Social and Affordable Housing Fund (SAHF), which aims to build another 1,000 homes for primarily older residents. The roll-out is part of the Government’s aim to deliver 27,000 social and affordable homes over ten years. From The AFR: The
By Leith van Onselen According to a Newspoll of more than 1500 people, Australian voters are more interested in spending on public services than personal income tax cuts or cutting government debt. 33% believe increased funding for services should be the top priority, followed by 30% who want government debt to be dealt with. Coming in
By Leith van Onselen The Australian’s Adam Creighton has written an enlightening article on how the Howard-era tax cuts continue to reap pay dirt for the Baby Boomer generation: Our athletes weren’t the only group to win gold on home soil in 2000. In the year of the Sydney Olympics, baby boomers snared world-beating tax
By Leith van Onselen I have previously argued that Australia is an “anti-humanitarian nation”. This view is based on the following facts. First, Australia’s foreign aid budget has cratered over the past half century: Second, Australia’s permanent migrant intake is incredibly light on humanitarian places – just 16,250 in 2018 – but heavy on so-called
By Leith van Onselen The pressure continues to build on the federal government to writedown the National Broadband Network (NBN), with first chief executive of the NBN arguing that it is inevitable following the “disastrous” rollout of the project. From The Canberra Times Mike Quigley, head of NBN Co under the former Labor government, said the
By Leith van Onselen A conga-line of “experts” have slammed Labor’s $6.6 billion affordable rental scheme, which is aimed at facilitating the construction of 250,000 ‘affordable’ rental dwellings over the next decade. From The Australian: The Grattan Institute’s John Daley said the policy, announced by Bill Shorten at Labor’s national conference in December, would be
There is something to pay attention to other than the house price crash. Phil Lowe mentioned it yesterday in passing: It’s an interesting issue you know, why we find ourselves in this situation. And every time I go to … talk to other governors of central banks, which I do six times a year, it
By Leith van Onselen A day after Prime Minister Scott Morrison insulted Victorians with a piss weak $140m of “congestion busting” funding, Victorian Treasurer Tim “Ponzi” Pallas has declared today’s federal population meeting a “sham” and demanded billions of dollars in funding from the federal government to cope with unrelenting immigration-driven population growth. From The Age:
By Leith van Onselen Last year, S&P Global Ratings released a report arguing that a write-down of the National Broadband Network (NBN) “appears inevitable” in order to reduce the cost at which it sells broadband capacity to telcos. The Australian Competition & Consumer Commission’s (ACCC) has also called for the Federal Government to write down the
By Leith van Onselen Scott Morrison seems to believe he can “bust” Melbourne’s congestion, and bribe his way into office, for the pissy sum of $140 million. From SBS News: Prime Minister Scott Morrison has vowed to spend $140 million to bust traffic congestion in Victoria, asking the state government to match the commitment. The
By Leith van Onselen The federal Opposition’s communications spokeswoman, Michelle Rowland, says Labor is considering a writedown of the National Broadband Network (NBN) if it wins the next election. Doing so would make it easier for NBNCo to reduce the cost at which it sells broadband capacity to telcos, but it would also cause a
Via The Guardian today comes Shadow Treasurer Chris Bowen: Seven years ago this April, my predecessor as shadow treasurer, Joe Hockey, got to his feet in London to declare the “age of entitlement” over. He didn’t declare any specific policies, just that budgets were under so much pressure that people who receive support from governments
Fact check from the ABC: The claim For months the Morrison Government has argued Labor’s controversial plan to raise more than $5 billion a year by scrapping refundable franking credits on dividends from shares is “not fair”. In a speech to the Alliance for a Fairer Retirement System, Assistant Treasurer Stuart Robert said the plan would hit
Via The Australian: Scott Morrison will give small business more tax incentives, vowing to extend the instant asset write off for investments of up to $25,000. …The legislation will hit the floor of parliament next month, with Mr Morrison labelling it a “very high priority”. “Businesses that go out and invest today — whether it
PM Scummo begins his re-election pitch today with a speech based upon fantasy: Labor said we would fail, but we nailed it – 1.1 million jobs within five years and we are now past 1.2 million jobs. Today, I am making a new jobs pledge for our government, to see 1.25 million jobs created over
By Leith van Onselen Bereft of policy, and facing electoral annihilation, the Morrison Government has taken a leaf out of the dying 2007 Howard Government’s playbook, flagging yesterday that it would provide one-off cash payments to pensioners and families on low incomes. Today, economists have lined-up to deride the policy, claiming that it represents nothing
