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.
Via The Australian: Senator Storer said if an incoming Labor government dragged the Senate back before June 30 to ram through part of its policy platform before the composition of the upper house changes following the election, he would attempt to push the government to ban Treasury costings of opposition parties. “Treasury and all other
Yesterday we heard from Grattan: …there have been a notable absence of savings measures in the past two budgets, other than the now almost obligatory measures to extract more efficiencies from the welfare budget. Budget consolidation has mainly been a revenue story. Revenues have increased by a full 2 per cent of GDP since 2013-14.
By Leith van Onselen In his Budget reply speech last year, Opposition Leader Bill Shorten announced plans to impose a cap on the amount that can be claimed for getting tax returns done by a tax agent. Shorten said Labor would apply a cap of $3,000, claiming that 48 wealthy individuals had paid an average
By Leith van Onselen After Labor last month doubled down on lifting Australia’s superannuation guarantee (compulsory superannuation) to 12%, the Grattan Institute has issued a firm rebuke in its pre-election Orange Book: [Grattan] urges the next government to abandon the current plan to increase compulsory superannuation payments from 9.5 per cent to 12 per cent,
By Leith van Onselen Migrant communities have stepped up their campaign to loosen Australia’s newly established ‘temporary’ elderly parental visas, which from this month will allow up to 15,000 elderly parents of migrants to live in Australia for a continuous period of three, five or 10 years. Several migrant communities have labelled these “absolutely unfair” because
By Leith van Onselen With the election campaign in full swing, Prime Minister Scott Morrison suddenly cares about traffic congestion across Melbourne: More than $150 million of ‘congestion busting’ road projects in Melbourne will be announced by the Coalition on Monday. The Morrison government says the $154 million investment will help ease gridlock across the
By Leith van Onselen The Australian Chamber of Commerce & Industry (ACCI) and the Council of Small Business of Australia (COSBA) has urged Labor to reconsider its proposed $17 billion reforms to the taxation of discretionary trusts, arguing that many small and family-owned businesses could be adversely affected by the policy. From The Australian: “Our
By Leith van Onselen Instead of arguing on policy merit, baby boomer mouthpiece Robert Gottliebsen has urged the Coalition to wage an almighty scare campaign against Labor’s tax policies in a bid to wrestle electoral victory from the jaws of defeat: A scare campaign would raise the prospect that all pensioners are in danger [from
By Leith van Onselen With the Budget projected to head back to surplus, and the Coalition pledging money for tax cuts and retirees, it still refuses to throw the unemployed a bone. Yesterday, social services minister, Paul Fletcher, again dismissed calls to raise Newstart, claiming the government’s current policy is “appropriate”. From The Guardian: Asked if
Via the AFR comes Scummo’s monstrous budget black hole: The Morrison government would need to cut spending by about $40 billion a year by 2030 to afford its big personal income tax cuts and deliver on its budget surplus forecasts, new analysis by the Grattan Institute shows. The Coalition has positioned its $387 billion in
By Leith van Onselen Greens Senator, Nick McKim, has labelled “horrific” the number of years taken for migrants to bring their elderly parents to Australia under Australia’s permanent migration program. From SBS News: Migrant advocates have voiced outrage and disbelief as it emerged wait times for some Australian family reunion visas are now up to
By Leith van Onselen The NSW Office of State Revenue has released stamp duty data to March, which reveals a massive $1.5 billion (21%) decline over the past year and a $1.9 billion (25%) decline since stamp duty receipts peaked in October 2017: The latest retracement in stamp duty receipts follows a sharp 19% decline
By Leith van Onselen Ross Gittins has done a good job today destroying the Australian Treasury’s perennially heroic Budget forecasts, which forever project an imminent ‘future boom’ for the Australian economy: …the longer Treasury dwells in the land of hope-springs-eternal, the more it gives its political masters the budget numbers they crave: ones showing the
By Leith van Onselen In 2000, former Treasurer, Peter Costello made the fateful decision to allow the conversion of franking credits into cash refunds for shareholders. This enabled tax-free (mostly wealthy) retirees to claim imputation credits even if they pay no tax. The Australia Institute explains: Some of the wealthiest people in Australia pay negative
By Leith van Onselen When it comes to cruelty against the unemployed, it’s hard to top Prime Minister Scott Morrison. When asked in September about raising Australia’s paltry Newstart Allowance, Morrison argued that the Budget couldn’t afford it: [Morrison] says while financial figures released this week show the economy at its strongest point in a
By Leith van Onselen The AFR’s shameless lobbying against Labor’s negative gearing policy hit another low over the weekend with another attack on the estimated savings from Labor’s policy: More evidence has emerged that Labor has seriously underestimated the extent of investment in newly-built housing and therefore overstated the revenue that might be raised by
By Leith van Onselen The 2019 Federal Budget included an obscure measure, entitled Destination Australia Program, promising to fund scholarships for both domestic and international students to study in regional Australia: $93.7 million from 2019-20 (and $23.7 million per year ongoing) to establish the Destination Australia Program to support domestic and international students to study
By Leith van Onselen Australian Council of Social Service CEO Cassandra Goldie has used the start of the federal election campaign to call for an increase in unemployment benefits. She says an above-average number of Newstart recipients live in seven of the 10 most marginal seats, and that an increase in the dole is a
By Leith van Onselen The Grattan Institute warns that collapsing rates of home ownership endangers Australia’s retirement system and could send government spending on housing assistance soaring. From The Conversation: …new Grattan Institute modelling shows the share of over 65s who own their home will fall from 76% today to 57% by 2056 – and
Goodness me, via the AFR: Scott Morrison has launched an early assault on Labor’s tax agenda by releasing Treasury modelling showing his opponents proposed increases and refusal to match the Coalition’s tax cuts would tally $387 billion during the next decade. The use of Treasury modelling, which the government had prepared before Mr Morrison called
By Leith van Onselen The AFR’s John Kehoe has penned a highly spurious article claiming Labor’s 49% tax rate will “hit middle-income earners”: Taxpayers earning between $130,000 and $160,000 today could be hit by Labor’s budget repair levy and 49 per cent top tax rate within four years as income growth pushes them into the
By Leith van Onselen In already built-out cities like Sydney and Melbourne, the cost of retrofitting new infrastructure to accommodate greater population densities is prohibitively expensive because of the need for land buy-backs, tunnelling, as well as disruptions to existing infrastructure. These are what economists call ‘dis-economies of scale’. The Productivity Commission (PC) has been
Via The Australian: Analysts have sounded a warning over short-term earnings at thermal coal exporters after a slump in demand sent prices to the lowest levels in more than a year. The slump came as Australian politicians engaged in another round of brawling over approvals for Adani’s 28 million-tonne-a-year Carmichael thermal coal mine in Queensland,
By Leith van Onselen Starting this month, the federal government will issue up to 15,000 sponsored parental visas to migrants who wish to bring their elderly parents to live in Australia for a continuous period of three, five or 10 years. However, members of the Indian community have attacked these visas, labelling “unfair” the need
By Leith van Onselen Yesterday evening, The Australian’s and The AFR’s lobbying against Labor’s negative gearing policy went into overdrive, attacking shadow Treasurer Chris Bowen for understating the share of negatively geared investment into newly constructed dwellings, and claiming that Labor has therefore overstated its Budget savings. Here’s The Australian: Opposition Treasury spokesman Chris Bowen
By Leith van Onselen ACCC head, Rob Sims, has hit out at the $50 billion National Broadband Network (NBN), claiming that many households are paying more for worse internet. From The Australian: Australian Competition & Consumer Commission boss Rod Sims yesterday warned NBN Co was failing to deliver on its promise of faster and affordable
By Leith van Onselen The Australia Institute (TAI) has released analysis of the Morrison Government’s tax cut package, which reveals that they will make Australia’s tax system far less progressive with benefits flowing overwhelmingly to higher income earners: The centrepiece of this budget is large income tax cut that builds on the large income tax
Via ANZ weekly consumer confidence: The fall in confidence last week would be seen as disappointing in Canberra given the near-term boost to household incomes delivered in the Budget. Given the usual volatility in the weekly data, we don’t believe the decline indicates a negative response to the Budget. Rather, it suggests the announcements failed
By Leith van Onselen Earlier this year, the Victorian Government called for a review of entry requirements into Australian universities after growing evidence that foreign students with poor English language proficiency are badly eroding education standards as well as placing undue strain on university teaching staff. Immediately afterwards, academics admitted to Fairfax that they had
By Leith van Onselen NewsCorp’s Terry McCrann has spent years penning ludicrous attacks on Labor’s negative gearing reforms. Over the weekend, he branched out even further claiming that a vote for Bill Shorten and Chris Bowen would be a vote for the “end of the world”. From The Australian: Bill Shorten and Chris Bowen have
