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.

26

Why infrastructure business cases often don’t stack up

Cross-posted from The Conversation: Infrastructure Australia’s latest infrastructure priority list has been criticised for being “too Sydney-centric” and for giving Melbourne’s East West Link, cancelled in 2014, “high priority” status. The cancelled Roe 8 project in Perth was removed from the list. So how does a project get onto Infrastructure Australia’s list? This requires submission

3

Drug Law Reform Foundation: legalise and tax pot

By Leith van Onselen Over the past two days (here and here), MB has supported The Greens’ proposal to legalisation marijuana on the grounds that: It would bring marijuana in line with alcohol and tobacco, which are both legal and regulated; It would guarantee purity of supply; It would reduce profits to organised crime; and It

8

NSW light rail farce deepens

By Leith van Onselen Back in October, we reported how secret NSW Government documents had been released revealing that the Parramatta Light Rail Project – the centrepiece of the Government’s plans to cement Parramatta as Sydney’s second central business district, as well as facilitate the building thousands of apartments around Sydney Olympic Park – had

11

ACTU’s ‘trickle-up’ minimum wage demand ridiculed

By Leith van Onselen The Australian Council of Trade Unions (ACTU) has been ridiculed for releasing projections arguing that a $50 increase in the minimum wage would create 40,000 to 57,000 jobs. From The AFR: …economists say unions assume wage increases will appear as if “manna from heaven” and fail to consider any effect of

8

Australia’s extreme reliance on personal income taxes

By Leith van Onselen A new report by workplace expert, Conrad Liveris, claims that the Federal Budget has become far too reliant on personal income tax receipts, with the share of Federal Budget revenues from income taxes has grown from 39.7% a decade ago to 47.2% currently, with the dollar increase in taxes from income

38

Will company tax cuts trickle down or trickle up?

By Catherine Cashmore The proposal to cut the company tax rate from 30% to 25% has received much media attention. We are repeatedly told it is needed to boost investment. The rational follows that companies are more likely to invest in productivity if they don’t have to pay as much tax on their gross income.

22

Legalise pot to pack Budget cone

By Leith van Onselen Yesterday, I posted an article stating why The Greens’ proposal to legalisation marijuana is sensible policy, namely because: It would bring marijuana in line with alcohol and tobacco, which are both legal and regulated; It would guarantee purity of supply; It would reduce profits to organised crime; and It would provide a

10

US corporate tax cuts fuel share buybacks, not investment

By Leith van Onselen Treasurer Scott Morrison has confirmed that the Turnbull Government will persist with its policy of progressively reducing the tax rate for all companies, claiming they are essential to fuel investment, jobs and wages growth. From The AFR: “We’ve had significant success already in delivering tax cuts for small and medium-sized businesses

10

Why Australia is a low taxing country

By Leith van Onselen The Australia Institute (TAI) has released a new report arguing that Australia is one of the lowest taxing countries in the OECD: Australia is a low-taxing country… Australia raises far less tax revenue than most developed countries. … the level of tax revenue raised inevitably affects governments’ ability to fund essential

36

Melbourne airport rail link another costly waste

By Leith van Onselen Last week, I questioned the efficacy of the announced $10 billion rail link connecting Melbourne airport to the CBD, noting that: the cost of a rail ticket is likely to be exorbitant, since Melbourne Airport’s private operators are likely to impose significant rental charges on any railway station that is built on

18

Putting the ‘con’ in WestConnex

By Leith van Onselen MB has frequently questioned the efficacy of Sydney’s WestConnex toll road and tunnel project – the $17 billion 33 kilometre motorway under construction that is more expensive per kilometre than the Chanel Tunnel. This hideously expensive project will see existing free public roads like the state-owned M4 (that have already been paid

23

MB Radio: Australia’s hidden normal comes out

  Ahead of the May budget Gunnamatta spoke with Leith van Onselen and David Llewellyn-Smith about the economic outlook and the unfolding Australian economic narrative.  In a wide ranging discussion Leith and David cover Australia’s reliance on commodity exports and the implication a subsiding global commodity market has for this dependence, as well as the potential

48

Is a Melbourne airport rail link worth spending $10 billion?

By Leith van Onselen The prospect of Melbourne getting a rail link connecting the airport to the CBD just moved closer to reality, with the Turnbull Government set to allocate $5 billion towards the project in the May Budget. From The ABC: While the funding announcement is significant, the $5 billion pledged will not be

5

ATO faces parliamentary probe following Four Corners report

By Leith van Onselen The fallout from Monday’s Four Corners report on the Australian Tax Office’s (ATO) alleged bullying of small businesses has continued, with both the Turnbull Government and the Labor Opposition committing to undertaking a parliamentary investigation into the conduct of the ATO, while Greens senator Peter Whish-Wilson and independent senator David Leyonhjelm

16

Labor vows to investigate ATO bully boy tactics

By Leith van Onselen Last night, ABC’s Four Corners aired a joint investigation with Fairfax on the Australian Tax Office’s (ATO) alleged bullying of small businesses. The segment featured explosive allegations by former employee turned whistle blower, Richard Boyle, and others who claim the ATO is driven by revenue collection: ATO debt collection officer Richard

4

Investment write-off three times better than company tax cut

By Leith van Onselen With the Turnbull Government expected to continue pressuring the Senate to pass its company tax cut package, researchers Janine Dixon and Jason Nassios of Victoria University’s Centre for Policy Studies have argued that the Government would be better off implementing investment subsidies similar to those introduced by US President Donald Trump.

15

Liberal Backbencher: Give us broad-based tax reform

By Leith van Onselen One of the positive spill-over effects to come from Senator Tim Storer’s blocking of the Turnbull Government’s company tax cut package is that it has shifted the focus back towards comprehensive broad-based tax reform. The latest example of this change in narrative came yesterday from Liberal Backbencher, Tim Wilson: Liberal MP Tim

39

NSW light rail farce turns nuclear

By Leith van Onselen Back in October, we reported how secret NSW Government documents had been released revealing that the Parramatta Light Rail Project – the centrepiece of the Government’s plans to cement Parramatta as Sydney’s second central business district, as well as facilitate the building thousands of apartments around Sydney Olympic Park – had

53

Forget Universal Basic Income, just raise Newstart

By Leith van Onselen Greens leader, Richard DiNatale, has been rubbished by economists for proposing a socialistic “universal basic income” (UBI) scheme in his Press Club Address yesterday. From The Australian: Greens leader Richard Di ­Natale’s policy to abolish all existing welfare and introduce a “universal basic income” — a non-means-tested payment to all citizens

4

Labor to target “junk” private health insurance policies

By Leith van Onselen With the annual cost of the private health insurance rebate expected to soar to $6.8 billion by 2020-21: Debate has raged over how a future Labor Government might reform the private health insurance system to make it more efficient and sustainable. Yesterday, it was revealed that Labor might look to target

43

Australia the anti-humanitarian nation

By Leith van Onselen Fairfax’s Matt Wade has penned an illuminating article on the decline in foreign aid given by Australia: Back in 1995, as the economy recovered from the deep recession earlier that decade, we reached a ranking of 9th on the international league table of overseas aid donors measured by the share of

15

Will Labor take an axe to private health insurance?

By Leith van Onselen With the annual cost of the private health insurance rebate expected to soar to $6.8 billion by 2020-21: Speculation is growing that a Labor Government might take an axe to the rebate: Opposition Leader Bill Shorten yesterday accused the private health insurers of “running amok” with their price increases, days after

29

Memo to Labor: Don’t lift the superannuation guarantee

By Leith van Onselen It appears the Labor Party is still considering speeding up the timetable for lifting Australia’s superannuation guarantee (i.e. compulsory superannuation contributions) from the current date of 2025 : Revenue and Financial Services Minister Kelly O’Dwyer warned Labor against meddling with the current trajectory in an environment of flat wages growth. “Increasing