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.


Health experts’ flawed call for mandatory health-star ratings

By Leith van Onselen Thirty-five health organisations have united to put an eight-pronged action plan to the Federal Government, which includes a 20% tax on sugary beverages. From The ABC: Obesity Policy Coalition [OPC] executive manager Jane Martin said obesity was having a dire effect on the nation’s physical and economic wellbeing. “We have a


Private health funds fight the death spiral

By Leith van Onselen Commentators often talk about the electricity “death spiral”, which arises when demand for power declines, due in part to customers taking up solar, leading to higher prices to cover fixed network costs. That is, the more people that take-up solar power, the faster decline in electricity demand, and the more fixed


WA Liberals vote for WAXIT

Via the ABC: The iron ore price spike in recent months has delivered little for state coffers, with the Government set to reveal a $1.7 billion royalty revenue hit over the forward estimates when it hands down its first budget next week. A range of factors, including lower exports and the high Australian dollar, have


VIC government hides foreign property buyer tax windfall

Via Domainfax: Foreign purchasers are buying as much as 40 per cent of all new apartments in Melbourne, with new figures showing a surge in a tax raised from offshore investment. Official data, released to The Age under freedom of information legislation, reveals that a tax on foreign buyers of residential property, introduced in mid-2015, has become


Is the public sector driving up the cost of living?

By Leith van Onselen The Australian’s David Uren has penned a spurious piece today arguing that the public sector is responsible for the rise in the cost-of-living since the Global Financial Crisis: Inflation in the cost of public-sector services is rising at more than five times the pace of the private sector, and is equivalent


The NBN needs subsidies if it is to work

Cross-posted from The Conversation: Half of all Australians are now able to connect to the NBN. But around 40% of eligible households have chosen not to connect to the network. Our modelling shows that subsidising the NBN is key to encouraging more Australians to connect. This would benefit the economy as a whole, but hurt


Demand-driven uni delivers pay dirt for vice-chancellors

By Leith van Onselen I have complained repeatedly that Australia’s universities have turned into ‘degree factories’ since student numbers were uncapped in 2009, whereby universities teach as many students as possible to accumulate Commonwealth government funding through HELP/HECS debts. At the same time, quality of teaching, and students’ ability to secure subsequent employment, remain distant


West Gate Tunnel: Another expensive infrastructure waste?

By Leith van Onselen I have noted previously 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


Coalition to plug wealthy tax loophole

By Leith van Onselen Last month it was revealed that a draft tax ruling issued by the Australian Taxation Office (ATO) in March 2017 could allow “passive” family investment companies to claim tax refunds and deductions, opening the door for wealthy families to claim back hundreds of millions of dollars. This draft ruling overturned the


Debating Labor’s trusts policy

By Leith van Onselen Former Labor minister, Craig Emerson, has penned an article in The AFR today talking up Labor’s plan to tax discretionary trusts and chastising the Coalition for balking at reform when it was in office: …two of the Coalition’s last three treasurers agreed that such action needed to be taken, only to


ACIL Allen: $1 billion Adani loan a dud

By Leith van Onselen ACIL Allen has produced a report confirming what many of us already know: that the proposed $1 billion concessional loan to Adani to build the Carmichael coal project is a dud that poses great risks to Australian taxpayers. From The Canberra Times: The economic assessment of the troubled project’s outlook found


BCA resorts to name calling over company tax cut

By Leith van Onselen The business lobby’s new found propaganda drive surrounding company tax cuts has continued, with Business Council of Australia (BCA) CEO Jennifer Westacott has labelling Opposition Leader Bill Shorten a liar for claiming that reducing the company tax rate will adversely affect economic growth. From The AFR: …the Business Council of Australia


Greens launch Budget-saving housing affordability package

By Leith van Onselen The Australian Greens have launched a new housing affordability package, entitled “Everyone needs a home”, which endeavours to remedy Australia’s “rigged housing market” by curbing negative gearing and the capital gains tax (CGT) discount, as well as help the states switch from stamp duties to land taxes. The package would also