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.


Morrison Budget fiddle to risk AAA

This is not news for MB readers but the AFR has finally caught up today: Any surge in government borrowing with so-called “good debt” could potentially weaken Australia’s hold on its AAA credit rating because the agencies gauging the nation’s budget credibility are more concerned about servicing costs than the quality of assets underpinning its debt.


ABC does Morrison’s “good debt, bad debt” Budget fiddle

By Leith van Onselen ABC’s 7.30 Report last night ran an interesting segment examining Treasurer Scott Morrison’s proposed change in Budget reporting to separate “good” debt from “bad” debt. The segment did a good job of highlighting the flaws in Morrison’s approach: ANDREW PROBYN: So what does the Government mean by “good” debt, as opposed


Capping negative gearing could save Budget $1.5 billion

By Leith van Onselen Ben Phillips from the Australian National University’s (ANU) Centre for Social Research and Methods has released new modelling estimating that capping negative losses at $10,000 could impact 300,000 property investors and could raise $1.5 billion for the Federal Budget. From The AFR: Ben Phillips from the Australian National University’s Centre for


The private health insurance subsidy isn’t worth it

Cross-posted from The Conversation: Almost 20 years after the 30% subsidy for private health insurance was introduced, premiums continue to rise every year. This comes at a cost to the federal budget – which was forecast at A$6.5 billion in the 2016 federal budget from the subsidy alone. Meanwhile, consumers continue to view private health


Exclusive: S&P hoses Morrison’s Budget accounting fiddle

This morning I asked S&P’s Australian analyst, Craig Michaels, the following: Does today’s mooted changes in Budget accounting, which divides supposed good and bad debt, alter the way S&P views the Budget? Specifically: will it alter the calculation of general government debt to GDP? will it alter S&P’s view of the 30% general government debt


Morrison to fiddle Budget books for infrastructure

By Leith van Onselen The AFR has reported today that Treasurer Scott Morrison will reform the way the Federal Budget is reported to separate “good” debt from “bad” debt, thereby allowing it to expand spending on infrastructure: …debt accrued to fund recurrent costs in health, welfare and other everyday expenses will essentially be classified as


Watered-down Boomer housing bribe to be included in Budget

By Leith van Onselen The Turnbull Government’s May 2017 Budget is tipped to include superannuation incentives for retirees as part of its strategy to address housing affordability. The Government is reportedly considering a proposal to give retirees who sell their family home and move to a smaller property an exemption from the $1.6m cap on


PwC: Choosing land tax over stamp duty could save $10k

By Leith van Onselen Modelling by PwC suggests that allowing home buyers to pay land tax rather than stamp duty could generate significant savings. PwC estimates that home buyers in NSW could save around $10,000 over the life of a 45-year mortgage by electing to pay land tax rather than stamp duty. PwC has proposed


Barnaby Joyce robot coming to a BBQ near you

Via Domainfax: A federal government agency has handed its public servants scripted lines, to be recited in “BBQ conversations” and other “social settings”, about its controversial move out of town. Workers at the pesticides authority have been given a long list of “talking points” to use on friends or family asking about the authority’s forced relocation from Canberra to Armidale in


Run for your life: IMF upgrades Australia

Via Peter Martin: The May budget is set to forecast a surge in economic growth, much lower unemployment and a rebound in inflation, according to a ‘sneak preview’ released by the International Monetary Fund Wednesday morning in Washington. The Fund’s updated forecasts for Australia contained in its annual World Economic Outlook are much more upbeat


‘Blowout’ in welfare spending is largely a myth

Cross-posted from The Conversation: For some time, the largest single component of federal government spending has been social security and welfare. In the last federal budget it made up an estimated 35.2% of total expenses and this was projected to rise to 37.5% by 2019-20. Given this, it’s not surprising that it’s also has been


Do-Nothing Malcolm prepares to squib on PRRT

By David Collyer, cross-posted from Prosper Australia: The Petroleum Resource Rent Tax has been a successful revenue-sharing device since 1987, delivering well over $33 billion to Consolidated Revenue, derived entirely from the economic rents of resource extraction with no harm to producers. It has never deterred exploration or hindered output. Treasurer Scott Morrison commissioned a


MB Radio: Rort of the Elites

Just weeks out from the 2017 Federal budget Gunnamatta spoke with David Llewellyn Smith and Leith van Onselen about the economic backdrop framing budget decisions, as well as the dynamics of Australia’s key commodity exports and the implications this has for the economic outlook, employment, incomes growth and the housing market.  With the federal government and


Coalition cuts funding to VET rorters

By Leith van Onselen Following scandal after scandal, and a $3 billion Budget blow-out over four years, the Turnbull Government in December passed a bill through the Senate imposing stricter eligibility criteria for Vocational Education and Training (VET) courses, as well as capping student loans. Now, two of Australia’s biggest private VET providers – Careers


Sukkar confirms first home buyer bribe will be in Budget

By Leith van Onselen You heard it here first. Back in February I explained why the Turnbull Government would include some sort of first home buyer (FHB) bribe in the May Budget. Today, Michael Sukkar – the minister assisting in the development of a housing affordability package – all but confirmed that a FHB bribe


Negative gearing reform dead, CGT lives

From The ABC a few days ago: Federal Cabinet formally examined the impact of tax breaks on Australia’s booming housing market in early 2016 but decided not to act, an ABC investigation has revealed. …instead of making changes last year, the Coalition embarked on a blistering campaign against Labor’s plans to curb property tax concessions. That


Ombudsman: Centrelink’s robo-debt system failed

By Leith van Onselen The Centrelink robo-debt fiasco is one of the bigger examples of Budget mis-management under this Coalition Government. Treasurer Scott Morrison promised Australians that Centrelink’s new data matching software would deliver more “accurate and appropriate income testing” by substituting manual checking of data for a computerised algorithm. It would also supposedly “cut


Joye: Morrison has saved the AAA (NOT)

From CJ today: In unusually frank remarks, Morrison argued that world-beating capital buffers were “especially important” because “our banks source a considerable share of their funding offshore, reflecting Australia’s position as a net importer of capital, and [because] our banks provide the bulk of the domestic credit that local firms and households receive”. Morrison will


EX-RBA boss rubbishes company tax cuts

By Leith van Onselen Do-Nothing Malcolm gave a keynote address last night at The Sydney Institute’s 2017 Anniversary Dinner, whereby he pushed the case for further company tax cuts, claiming that the benefits will flow to workers [my emphasis]: Most of the burden of high company taxes is borne by workers because high taxes discourage