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.


States “hide” infrastructure debt in asset recycling

Nice work from Adam Creighton today: One of the world’s biggest ratings agencies has questioned the NSW government’s finances, as new analysis reveals the nationwide ­infrastructure boom is pushing combined federal and state government debts towards the $1 trillion mark for the first time. US ratings giant Moody’s called the widely praised NSW budget a


NSW Budget bets on Futureboom!

Yes, it’s Futureboom! But it’s not the RBA nor Treasury. It’s the NSW Budget: Note the wage price index and population growth. Wages are magically going to surge right alongside new waves of cheap coolies. And that’s going to keep consumption up even as house price fall: This strength has been underpinned by households—through dwelling investment


Labor: We’ll repeal Turnbull tax cuts

Via The Australian: Bill Shorten has announced a future Labor government would repeal the government’s $144 billion income tax plan if it passes the parliament as he confirms the party’s opposition the bulk of the package. The Opposition Leader said Labor was prepared to vote for stage one of Malcolm Turnbull’s income tax package and


Key issues missed in the endless tax debate

By Leith van Onselen The Australian’s Adam Creighton has penned a strong rebuke of the debate around income tax cuts, claiming that both sides of politics are looking to increase Australian’s tax burden: Voters have Hobson’s choice when it comes to tax. Both major parties are proposing to increase income tax, the Coalition only a


There’s nothing “fair” about the Coalition’s tax cuts

By Leith van Onselen Australian National University researcher, Robert Breunig, has produced some strange analysis arguing that eliminating the second highest tax bracket, as proposed by the Turnbull Government’s personal tax cut plan, would create a simpler and fairer tax system without eroding progressiveness. From The Canberra Times: An analysis of 160 million Australian tax records between


Chris Pyne’s salary rises to $175bn

Recall from defense expert Brian Toohey two years ago: …everything is wrong about the Turnbull government’s decision to build 12 extremely large submarines in Adelaide. …The government’s refusal to go with an off-the-shelf design will cost more billions, because the first of new submarines won’t be operational until after 2030 and the last until almost 2060. This means the decrepit


S&P kicks Australia out of “very low risk” sovereign club

It’s not yet the sovereign downgrade, but it’s the pre-downgrade downgrade, from S&P: • In the past two years, information has emerged on the Australian banking system that highlights lapses in governance and risk management. As a result, we are revising our previous view on the competitive dynamics and institutional framework of the Australian banking


Australian Taxpayers’ Alliance talks its book on tax cuts

By Leith van Onselen Australian Taxpayers Alliance (ATA) director, John Humphreys, claims the cost of the Turnbull Government’s income tax cut package has been grossly overstated and that the package will only cost about $78 billion over 10 years, compared with Treasury’s forecast of $144 billion. In particular, the Government estimates that the third stage


Calls to strip corrupted Treasury of Budget forecasting

By Leith van Onselen This site has previously lamented the gradual denuding of Australia’s public service, which has been stripped raw by decades of government outsourcing, waves of senior redundancies, as well as a preference for governments to seek advice from paid consultants, erroneously named ‘think tanks’, and political staffers. The end result has been


Superannuation not so super for Federal Budget

By Leith van Onselen The Australian’s Adam Creighton has penned another excellent article attacking the cost of Australia’s compulsory superannuation system on the Federal Budget: The superannuation guarantee increases costs to the government, which therefore ­requires a higher tax burden. That’s because the cost of the superannuation tax concessions is greater than the savings to


Coalition’s tax cuts overwhelmingly benefit the wealthy

By Leith van Onselen Last month, The Australia Institute (TAI) released research estimating that “62% of tax cuts benefits go to highest income earners”, whereas “just 7% of the benefit goes to the 30% of Australians on the lowest wages”: Now, the Grattan Institute has provided a submission to the Senate Economics Legislation Committee Inquiry into


Sydney Light Rail Project turns farce

By Leith van Onselen In the wake of the massive cost blow-outs and delays hitting both the Parramatta Light Rail Project and the Eastern Suburbs Light Rail Project, the former head of Infrastructure NSW, Paul Broad, has described the Eastern Suburbs Light Rail Project as a waste of money and a vanity project that should have never been started.


Morrison’s fantasy tax cuts morph into Budget fraud

This is beyond reckless. It is beyond fantasy. Domainfax has the scoop: The Turnbull government’s personal income tax plan will cost $24 billion a year by the end of the decade, new figures show, in what will be the largest income tax cut in Australian history. The costings by the independent Parliamentary Budget Office commissioned


Why Australia needs to replace fuel excise with direct road charges

By Leith van Onselen Outgoing chief executive of Infrastructure Australia (IA), Philip Davies, has urged the federal government to proceed with a road pricing inquiry or face a revenue crisis. From The AFR: “That’s a long game and that’s a hard conversation in the community but we’d welcome seeing that inquiry,” he said. He said road


Chris Richardson: Infrastructure cannot cope with a ‘Big Australia’

By Leith van Onselen Long-time mass immigration booster, Deloitte-Access Economics’ Chris Richardson, yesterday admitted that Australia needs to spend five times as much on infrastructure if we hope to keep up with projected “exceptional” levels of population growth. From The AFR: Mr Richardson, a partner with Deloitte Access Economics, says a “disappointingly patchy” approach to


No evidence company tax cuts has created jobs

By Leith van Onselen Economist Saul Eslake has questioned the claim that company tax cuts will create jobs after new data shows that jobs growth in the small business sector, which received the first phase of the Coalition’s company tax cut package, has lagged. From The Australian: Big business has created the lion’s share of


Coalition’s income tax package will erode progressiveness

Cross-posted from The Conversation: Does the Coalition’s tax plan favour high earners over those with lower incomes? Depending whom you listen to, the tax cuts, unveiled in last month’s federal budget, lead to either a flatter, more regressive tax system under which low-income earners will be even worse off relative to high earners, or the


Joye: Shock surplus coming

The Chris Joye campaign to lift Aussie bank bonds continues today: Australia’s shrinking professional media appears to have once again completely missed the fact that the government reported a huge $9 billion budget surplus in April, which means it is theoretically possible Treasurer Scott Morrison will deliver voters a shock surplus in the current 2017-18


Fair Work lifts minimum wage 3.5%, scoffs at Budget wages outlook

Some of the key changes to the economy evident in this Review include:  Full-time employment grew by 3.1 per cent, significantly greater than the 1.0 per cent growth over the previous year.  Hours worked increased by 3.3 per cent over the year to April 2018 compared with 1.8 per cent a year earlier.


Mathias Cormann spins company tax cuts benefits

By Leith van Onselen Finance Minister and used car salesman, Mathian Cormann, has penned a desperate article in The Australian spruiking that “corporate tax cuts are essential for Australia’s growth and prosperity”: Higher taxes on businesses in Australia compared with elsewhere puts them at a competitive disadvantage. Higher taxes make it harder for businesses to


There’s still life in the company tax cut dog

By Leith van Onselen The Turnbull Government’s flea ridden $36 billion company tax cut package is still clinging to life with One Nation MP, Brian Burston, defying leader Pauline Hanson and supporting the legislation. From The Australian: Senator Burston told The Australian he was blindsided by Senator Hanson’s decision to with­draw support for the package,


NSW stamp duty receipts continue to fall

By Leith van Onselen The NSW Office of State Revenue has updated its stamp duty data for April 2018, which reveals that stamp duty receipts continue to fall following a monumental five-year boom: As shown above, annual NSW stamp duty receipts ($7.234 billion) in April retraced further from October’s all-time high of $7.556 billion; although