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.


Bugger the surplus. Households hate life without RBA insurance

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


Costello proves you can say anything and get away with it

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


He ain’t called Recessionberg for nuthin’

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


$15b airport rail tunnel highlights problem with in-fill infrastructure

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


ABS boss warns further funding cuts will dumben economy

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


CBA: Iron ore to hammer nominal GDP, Budget

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


Recessionberg is doing a Tony Abbott to the economy

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


Time to abolish remote tax breaks

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


80% of migrant visa holders paid less than minimum wage

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


Recessionberg demands states slow growth

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 Government spearheads new privatisation push

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


Banker kings move to control RBA and Treasury

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


Private health insurers need to stop seeking handouts

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


Coalition defends Newstart poverty payments

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


Coalition’s first home buyer bribe gets Senate tick

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


Experts line up to denounce Dan’s $50b rail loop white elephant

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


Calls for independent commission to set Newstart

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 Aged Pension’s fatal policy flaw

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,


NDIS a boon for administrators and middle-men

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


Recessionberg: My economic plan is stupid

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


PBO blows up Budget

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


Peter Costello demands negative gearing reforms

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