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.

7

Aged care tax rejected by Frydenberg

Treasurer Josh Frydenberg has acknowledged that funding for the aged-care sector needs to be increased, but he says that growing the economy is the best way to do this. The final report of the aged-care royal commission recommended increasing funding for the sector via the tax system. However, Tony Negline from Chartered Accountants Australia and

4

PBO: National cost of COVID response to reach $327bn over five years

The Parliamentary Budget Office (PBO) has released its National Fiscal Outlook, which estimates that the combined net debt of Australia’s three levels of government will blow out to almost $1.3 trillion in the five years to 2024. Federal, state and local governments are forecast to collectively spend some $327 billion on COVID-19 measures over the

21

How to fund aged care reforms

Around $27 billion was spent on Australia’s aged care system in the 2018-19 financial year, of which the federal government contributed around $20 billion. Economists warn that implementing the minimum recommendations of the aged-care royal commission would require annual expenditure on the sector to be increased by up to $9 billion. However, this could rise

33

Don’t raise taxes to fund aged care

It is reported in The AFR that the federal government will allocate an additional $452 million to aged-care in response to the final report of the royal commission into the sector, with further measures to be included in the May Budget. The report has made a total of 148 recommendations, with commissioners Tony Pagone and

28

Pro-cyclical Labor bins negative gearing reform

As property prices turn nuclear, hoocoodanode that Labor would backflip on negative gearing reform? It’s not like we don’t need it. Nor that the timing isn’t terrific. Indeed, given Labor took the reform to the last election as property prices crashed out of the Hayne Royal Commission, it looks decidedly and stupidly pro-cyclical abandoning the

3

NBN greed lambasted by Senate

The Senate passed a motion yesterday attacking NBN Co for paying almost $78 million in pandemic bonuses in the second half of 2020, describing the payments as “excessive, unreasonable, and lacking in justification”. The motion passed 32 votes to 30, with Labor, the Greens, Centre Alliance, PHON and independent Senator Rex Patrick all backing it.

42

Coalition’s $90b French subs are Australia’s worst ever pork-barrel

In 2016, the Turnbull Government bizarrely announced that France’s Naval Group had won the $50 billion bid to build 12 extremely large submarines in Adelaide. It was later revealed that the decision was arrived at to pork barrel the seat of former Defence Minister Christopher Pyne by ‘creating’ 3,000 jobs. Since then, the project has

1

Fitch retains negative outlook on Australian AAA

Via Fitch: Fitch Ratings has affirmed Australia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘AAA’ with a Negative Outlook. KEY RATING DRIVERS Australia’s rating reflects its strong institutions and effective policy framework, which supported nearly three decades of economic growth prior to the coronavirus pandemic and helped limit the severity of the current shock. The

23

How the Coalition stuffed the NBN

Arguably the biggest flaw afflicting the National Broadband Network (NBN) is that it chose to stick with the old copper network across many areas of Australia, instead of rolling out fibre optic cable. This decision came about because then Communications Minister, Malcolm Turnbull, abandoned plans to build a Fibre-to-the-Premises (FTTP) NBN across most of the

10

Should Australia adopt an unemployment insurance scheme?

Earlier this week it was reported in the mainstream press that the Morrison Government was considering an unemployment insurance scheme in lieu of permanently lifting JobSeeker. Under such a scheme, anyone made unemployed would be paid a fixed percentage of their income (e.g. 70%) for a set amount of time (e.g. three months) while they

4

Tourism industry begs for $7.7b JobKeeper bailout

Tourism & Transport Forum CEO Margy Osmond warns that the tourism industry will shed another 318,000 full-time jobs by the end of 2021 if it does not receive government support after the JobKeeper scheme ends. The TTF wants a $7.74 billion industry-specific wage subsidy to replace JobKeeper, via a two-tier payment structure based on the

19

Australia’s public service loaded with fat cats

What has become abundantly clear during the COVID-19 pandemic is that the public service, government agencies, and government quangos are loaded with fat cats. Consider the following. First, a new 9News analysis of all federal government departments and agencies reveals that there are 37 people earning more than $900,000 in the 2019-20 financial year: “They’re

6

Corrupted universities demand another $1b from federal government

Late last year, the Morrison Government announced that it would give Australia’s universities an additional $1 billion of research funding, taking total federal spending on research for 2021 to $3 billion. Under the plan, Melbourne University will receive an additional $111 million in research funding, while the University of New South Wales and Monash University

3

NBN at war with telcos over wholesale pricing

Another war is brewing between NBN Co and Aussie telecommunications companies over the exorbitant wholesale prices charged, which retailers then pass onto customers. NBN Co released a pricing review paper yesterday whereby it proposed a 10% discount to its extra capacity charge, which is officially known as ‘connectivity virtual circuit’ (CVC). Telcos have previously compared

3

Dan’s West Gate Tunnel becomes financial black hole

In 2017, the Victorian Government agreed to an unsolicited bid from toll giant Transurban to build the West Gate Tunnel Project – a four kilometre toll road currently under construction in Melbourne to link the West Gate Freeway at Yarraville with the Port of Melbourne and CityLink at Docklands. Under the project’s terms, Trans­urban would

27

ScoMo mulls JobSeeker lift

For years it has been obvious that Australia desperately needs a big rise in the JobSeeker payment. It has fallen far behind other nations and behind the pension. It is below the poverty line. Just about every economist and lobby group in the country agrees. Yet the Morrison Government has continued a tin-eared resistance to

22

Elon Musk muscles in on NBN’s turf

The National Broadband Network (NBN) is facing competitive threats on all fronts. Telstra, Optus and TPG are currently rolling out comparatively affordable, fast 5G wireless broadband to compete head-to-head with the NBN. Telstra, for example, already offers a lightening quick 4.2 gigabits per second (Gbps) on its emerging 5G network, which is around four times

1

WA budget rides the iron ore boom

Western Australia’s Department of Treasury has upgraded its forecast for the state’s 2020-21 Budget surplus to $3.1 billion, compared with expectations in December of just $2.2 billion. The state’s improved fiscal position has been driven by continued strong demand for iron ore, with Treasury forecasting that the price of the steel input will average US

26

Can’t raise JobSeeker, can pork barrel retirees

Treasurer Josh Frydenberg is said to be looking at measures in the May budget to assist self-funded retirees hurt by record low interest rates. In particular, lowering the deeming rate for aged pensioners, and making permanent what was a temporary reduction in the drawdown rate that the government introduced in March at the height of

30

Real estate parasites demand tax deductible mortgages

For the rent-seekers in the property industry, no amount of taxpayer subsidies or interest rate cuts are ever enough. Despite the Australian property market defying the COVID-19 downturn thanks to massive taxpayer stimulus and RBA intervention in the mortgage market, which has driven first home buyer (FHB) demand to new highs: The Real Estate Institute

11

Coalition flags HECS-style loan scheme for businesses

The Australian Hotels Association is among the latest lobby group demanding wage subsidies beyond the late-March end date for JobKeeper: “In the last 74 days alone nearly 10 million Australians have been locked down across four CBD areas (in Adelaide, Sydney, Brisbane and Perth). In Perth they still are,” AHA chief executive Stephen Ferguson told

2

State governments buy a year of capex growth for $50bn

Via Deloitte: Business investment looks to have been the hardest hit part of the Australian economy in 2020. The effects will linger over 2021 and 2022 – but the outlook has also improved. Releasing the latest edition of Deloitte Access Economics’ quarterly Investment Monitor, Deloitte Access Economics partner and report lead author, Stephen Smith, said:

7

Victoria: the home of public sector fat cats

Data from Victoria’s Public Sector Commission shows that the number of executives employed in state government departments has risen from 675 to 1,471 since 2015. The total wages bill for senior public servants has also more than tripled from just $99.2 million to $327.5 million over this period, according an analysis of the annual reports

2

Auditor General to probe JobKeeper rorting

Labor MP Andrew Leigh says the federal government’s JobKeeper wage subsidy scheme should be subject to proper scrutiny. He has accused the government of being “extremely secretive” about the scheme, claiming it has refused to disclose how much was paid to companies that increased their profits in 2020 or paid bonuses to their executives. Leigh has