By Leith van Onselen As part of its June State Budget, South Australia announced that it would levy an additional 4% stamp duty on foreign property buyers and temporary residents, starting from 1 January 2018. In the wake of its back down over the bank levy, the South Australian Government has decided to lift the
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.
By Leith van Onselen From the get-go, MB has opposed the Turnbull Governments proposed reduction in the company tax rate from 30% to 25% on the following grounds: Foreign businesses and shareholders would gain the lion’s share of the benefits due to Australia’s dividend imputation system; The Budget would lose $8.2 billion a year, according
By Leith van Onselen I have previously claimed that Australia’s private health insurance system is facing forces similar to the electricity “death spiral”, which arises when demand for power declines, due in part to customers taking up solar, leading to higher prices to cover fixed network costs. That is, the more people that take-up solar
By Leith van Onselen The Australian’s Judith Sloan has today called on the Queensland Government to sell-off public assets in order to pay down debt: According to the projections in the Queensland budget papers, government debt in the state will exceed $81 billion in 2020-21. It is currently $72bn. There is no sense in which
By Leith van Onselen The May Budget included the below measure to tax foreign owners that leave their properties vacant: The Budget also included measures aimed at limiting the deductions that can be claimed by property investors: Yesterday, these measures passed the Senate with Labor support: Summary Introduced with the Foreign Acquisitions and Takeovers Fees
By Leith van Onselen Just in via The Australian: The South Australian government has abandoned its controversial bank tax. Premier Jay Weatherill says the levy, designed to raise $360 million from the big banks over the next four years, has no prospect of being passed in state parliament. “For all intents and purposes, the bank
By Leith van Onselen Although older Australians have captured an increasing share of Australia’s wealth: Largely because they have increased their home ownership rates over the past 55 years at the same time as home values have skyrocketed: The situation is nowhere near as rosy for Australia’s renting pensioners, who are doing it tough according
By Leith van Onselen The May Budget included the below measure aimed at encouraging seniors to downsize from their large homes to free-up housing for Australian families: Now, The AFR has run an article on the financial pitfalls involved with seniors downsizing: Australia’s property market could get an unexpected volume boost from the middle of
Cross-posted from The Conversation: The Australian Competition and Consumer Commission (ACCC) has launched a public inquiry into the National Broadband Network (NBN). Already, Telstra and Optus have come forward, offering to compensate customers whose expectations of internet speed delivery were not met. But it’s four years too late. The ACCC dropped the ball when it
By Leith van Onselen With HELP bad debts currently standing at around $50 billion, the federal Education Department will work with the Australian Taxation Office (ATO) on matching tertiary courses with income and employment outcomes. The stated intent is for this information to help assist prospective students with course choices. However, Andrew Norton of the
By Leith van Onselen The AFR has published an interesting article canvassing ending (or reducing) Australia’s unique dividend imputation system to fund company tax cuts: …abolishing dividend imputation entirely… would generate $11.1 billion a year at the 30 per cent rate. But that would be howled down by investors, who would lose credits for tax
Via Chris Richardson at Deloitte: Understanding the official forecasts (and how they pull a rabbit out of their hat) The official forecasts in the 2017-18 Budget released in May aren’t at all well understood. They say that 3% of national income ($50 billion a year) will go from families and businessesinto Canberra’s coffers over the
By Leith van Onselen The Turnbull Government’s desperate attempt to keep the East Coast property bubble going has hit a snag with the Senate looking as if it will vote down the Government’s legislation to allow first-home buyers (FHBs) to use up to $30,000 of voluntary super contributions for a housing deposit. From The Canberra
By Leith van Onselen Always the corporate mouth piece, The Australian’s David Uren has penned an article today claiming that Australia’s corporate tax rate will soon be the highest in the world: US company tax cuts will accelerate the slide in global business tax rates, leaving Australia stranded with the highest company rate in the
By Leith van Onselen In February 2016, The Australian Treasury released modelling on the Turnbull Government’s plan to cut the rate of company tax from 30% to 25% over 10 years. This modelling estimated that the full company tax cut package would cost the Budget some $11.3 billion per year. However, this would be reduced
By Leith van Onselen I have noted repeatedly that one of the key reasons why Australia’s high population growth (immigration) is lowering the living standards of existing residents is because of the strain that it places on infrastructure, which inevitably leads to more congestion on roads, public transport, as well as more expensive housing. Basic
By Leith van Onselen Some 13.4 million records from Bermudan law firm Appleby have been leaked to the international press, with records covering the period from 1950 to 2016. And this leak, dubbed the “Paradise Papers”, has implicated several multinational corporations in tax avoidance, prompting the Australian Tax Office (ATO) to take action. From The
Treasury Secretary John Fraser went to a lot of trouble last night explain why Australia has seen so little non-mining business investment in recent years. Here it is. Introduction Good evening ladies and gentlemen and my thanks to the Research School of Economics for inviting me to give this address. Sir Leslie Melville’s legacy is
By Leith van Onselen After last week’s Productivity Commission (PC) report included a recommendation for the states to shift from stamp duty to land taxes, and the property lobby endorsed the idea, attention has turned to how the reform could be implemented in practice. Kevin Davis, research director of the Australian Centre of Financial Studies,
By Leith van Onselen Last month, Prime Minister Malcolm Turnbull warned that the $49 billion National Broadband Network (NBN) may never earn a profit, which was followed by warnings that the NBN could punch a big hole in the Budget because the federal government is required to adjust its Budget treatment of the NBN if
By Leith van Onselen Last week’s Productivity Commission (PC) report, entitled Shifting the Dial: 5 year productivity review, included a recommendation for the states to shift from stamp duty to land taxes: Recommendation 4.8 Remove stamp duties and implement transition to land tax State and Territory Governments should move from stamp duties on residential and
By Leith van Onselen After butchering its ‘flagship’ $750 million Youth-Jobs PaTH program – to prepare, trial and ultimately hire young Australians – another ‘flagship’ Turnbull Government employment program has failed. From The Australian: The Coalition’s flagship $7.3 billion employment services program has been branded a “hopeless mess” with fewer than 40 per cent of
By Leith van Onselen In the wake of the Productivity Commission’s latest Shifting the Dial productivity review report, Griffith University economics professor, Ross Guest, has joined the chorus lambasting the dilution of Australian university standards and the weakening of jobs prospects for graduates. From The AFR: Ross Guest agreed universities were overly focused on research and
By Leith van Onselen It is Groundhog Day at the Australian Bureau of Statistics (ABS). The organisation has already been savaged by funding cuts and jobs losses under the prior two governments (both Labor and Liberal), thus hampering its ability to perform its functions. Now, the ABS’ Forward Work Program 2017-18 foreshadows another 500 job
By Leith van Onselen New South Wales Treasurer Dominic Perrottet has proposed the creation of a new body to be called the “Board of Treasurers”, which would comprise treasurers from the eight states and territories, but would exclude the federal treasurer. Its proposed creation comes at a time when some states and territories are becoming