By Leith van Onselen Treasurer Scott Morrison has signalled that company tax cuts will be a legislative priority for the Federal Government when parliament resumes in February, citing new OECD research which concluded that across-the-board corporate tax cuts result in increased business investment and “substantial” income gains for all wage and salary earners. From The
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 In 2006, then Treasurer Peter Costello announced that the taper rate by which the Aged Pension is phased-out would be halved from $3 per $1,000 of assets over the threshold to $1.50. This change greatly relaxed the assets test for the Pension, and led to the ridiculous situation whereby retiree home
By Leith van Onselen Back in 2016, Prime Minister Malcolm Turnbull proposed allowing the states to levy their own income taxes so that they can pay for their own services, such as hospitals and education. However, the proposal was viewed with skepticism by the states, as noted by Fairfax’s Mark Kenny at the time: While
By Leith van Onselen The Minerals Council of Australia (MCA) has joined the chorus demanding company tax cuts, claiming the industry is paying more than half of its profits in taxes. From The AFR: The Minerals Council of Australia’s annual tax survey, conducted by Deloitte Access Economics, claims the effective tax rate for the industry
By Leith van Onselen In a paper released yesterday, the Australian Medical Association (AMA) called for a tax on sugary drinks in a bid to reduce Australia’s obesity problem. However, both the Coalition and Labor rejected the call. Here’s the AMA’s view via 9News: “You wouldn’t dream of putting 15 teaspoons of sugar in your
By Leith van Onselen This site has argued repeatedly that a university degree has lost its value as graduate numbers have exploded, despite the significant cost to both students and the Budget. Thanks to the uncapping of university places, allowing universities to recruit as many students as they can fit in order to accumulate HELP/HECS funding,
By Leith van Onselen I’m getting the sense that the Reserve Bank of Australia (RBA) does not support the Turnbull Government’s planned reduction in the company tax cut rate from 30% to 25%. In October 2017, RBA Assistant Governor, Luci Ellis, questioned the efficacy of cutting company taxes, claiming it was unlikely to materially boost
By Leith van Onselen The Nick Xenophon Team’s Stirling Griff believes the Turnbull Government should focus on personal income tax cuts rather than extending company tax cuts to businesses with turnover of more than $50 million. Senator Griff says implementing the Government’s full enterprise tax plan would be “fiscally irresponsible” and the economic benefits are
By Leith van Onselen Greg Craven, vice-chancellor of the Australian Catholic University, has penned a driveling article in The Australian today moaning about the Coalition effectively ending the demand-driven university system: Australia thinks of itself as a land of opportunity. Some politicians less so. Through its cuts to university places, the Turnbull government poses a
By Leith van Onselen The Turnbull Government’s project to expand the Snowy Hydro scheme via pumped hydro-electric technology was originally slated to cost about $2 billion. However, a new feasibility study estimates that the cost could double to around $4 billion; although the study still concludes that the expansion project is “financially feasible” and notes
By Leith van Onselen What has happened to the Australian Treasury? This once august institution – previously a doyen of ‘frank and fearless’ policy advice – has now morphed into a second rate mouthpiece championing whatever daft policy comes from the sitting government. A classic example of how Treasury has lost its way is found
Cross-posted from The Conversation: Last week Victorians awoke to their very own Groundhog Day, with the Victorian government signing a contract to build the controversial A$6.7 billion West Gate Tunnel Project. Like the controversial East West Link, this project has no electoral mandate, and was rushed through the formal planning processes. It’s also part of
By Leith van Onselen Treasurer Scott Morrison says his job over the summer is to disprove the claims of economists who say the Federal Government is not in a position to deliver income tax cuts. Morrison says it will be a challenge to deliver tax cuts to both companies and individuals while maintaining the Government’s
By Leith van Onselen Former federal ALP minister, Graham Richardson, has joined the chorus calling for Australia to implement a tax on sugar. From The Australian: Probably no product in the world that has managed to penetrate more countries and cultures than Coca-Cola… Chocka block with sugar this addictive drink plays its part in the
By Leith van Onselen Yesterday, business groups once again demanded that parliament approve the Turnbull Government’s policy to drop the company tax rate to 25% from 30%, warning that it “must change or we’ll lose investments to the US”. From The Australian: …former Business Council president Graham Bradley said while some had discounted the chances
By Leith van Onselen A week after NSW Treasurer, Dominic Perrottet, spruiked the Government’s economic and budget success and promised that state budget surpluses would average $2.1 billion until 2021, the NSW Office of State Revenue has updated its stamp duty data for November 2017, which shows that stamp duty receipts have peaked after a
By Leith van Onselen Yesterday afternoon, the Mid-Year Economic and Fiscal Outlook (MYEFO) was released by Treasurer Scott Morrison which, as expected, reaffirmed its commitment to returning to surplus by 2020-21: As shown above, the underlying cash balance was $5.8 billion better-off in MYEFO versus the Budget, and this was caused primarily by a large
By Leith van Onselen Over the past year or so, reports have emerged documenting the billions in taxpayer funds that have flowed to consultants. In September 2016, Michael West reported how the Big Four accounting firms had taken corporate welfare to an extraordinary level, earning up at least $2.6 billion in fees from the Australian
By Leith van Onselen In February last year I noted that the cigarettes tax – a policy adopted by both major parties in the lead-up to the Federal Election – would achieve two broad outcomes: It would fail to raise the projected revenue. With smoking rates falling, it is a declining tax base and this decline
By Leith van Onselen Last month, the Australian Taxation Office (ATO) undertook action against 19 multinational corporations implicated for tax avoidance after 13.4 million records from Bermudan law firm Appleby were leaked to the international press (dubbed the “Paradise Papers”). And later in November, it was revealed that the ATO’s action on multinational tax avoidance
By Leith van Onselen The Victorian Budget Update was released on Friday, which was largely another big spending, big taxing affair. In his Media Release, Treasurer Tim (“Ponzi”) Pallas spruiked Victoria’s booming economic conditions, which has led to an upgraded projected surplus of $1.7 billion in 2017-18, with estimated surpluses averaging $2.2 billion over the
By Leith van Onselen A day after chief economist at Industry Super Australia, Stephen Anthony, penned an article projecting Budget deficits for the next decade and beyond, driven by publicly funded employment (disability support, education and health) and infrastructure investment, Westpac is still projecting a return to surplus by 2020-21. From The Australian: A budget
By Leith van Onselen The Age has published an article today on how the National Rental Affordability Scheme (NRAS) – a $3.2 billion scheme launched by the former Labor Government in 2007 amid claims that it would increase the supply of affordable rental housing to low and moderate income households – turned into a rort
By Leith van Onselen NSW Treasurer, Dominic Perrottet, is out this morning spruiking the Government’s economic and Budget success. From The AFR: At the mid-year economic update in Sydney, Mr Perrottet unveiled a $600 million increase to the expected surplus for this financial year, rising from $2.7 billion to $3.3 billion. He said state budget
By Leith van Onselen Stephen Anthony, chief economist at Industry Super Australia, has penned an article in The AFR today explaining why the Turnbull Government’s planned return to surplus is deluded and we should expect rising Budget deficits over the next decade: Recall that if the 2017-18 budget outlook was “adjusted” slightly to reflect the evident
By Leith van Onselen After its previous university funding reforms were blocked in the Senate, the Turnbull Government is considering alternative funding cuts that can be implemented without legislation as part of its Mid-Year Economic & Fiscal Outlook (MYEFO). From The AFR: The Australian Financial Review understands the Mid-Year Economic and Fiscal Outlook (MYEFO) will
By Leith van Onselen The Mitchell Institute’s 2017 report has been released, which shows that while funding to universities has skyrocketed over the past decade in real terms, funding for vocational education and training (VET) has plummeted to a decade low. From The Conversation: The chart below shows the trends in expenditure over an 11-year
By Leith van Onselen I have argued 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
By Leith van Onselen The Institute of Public Affairs (IPA) has proposed adopting a system of “competitive federalism”, whereby the states would be responsible for setting their own GST rate and retaining the revenue. IPA executive director John Roskam suggests that the states and territories could also be allowed to impose their own income taxes.
Via the AFR today: Malcolm Turnbull says he has delivered on the promise he made when he deposed Tony Abbott that he would restore confidence, create jobs and boost economic growth. And he has reassured disillusioned voters that while some of the “very big distractions” of this year were not of his government’s making, they