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.

127

HomeBuilder grants ignite “land frenzy”

The Morrison Government’s new homes and renovation subsidy will be named “HomeBuilder” and will given up to $25,000 to eligible households to build or substantially renovate their homes: The scheme will give $25,000 grants to eligible homeowners, but recipients will need to spend at least $150,000 of their own money… The grants will be means-tested

25

University bailout must come with strict conditions

As reported by Sky News above, Australia’s university sector is demanding a taxpayer bailout to help them overcome the financial shortfall left from the decline in international students. This comes as new modelling by Universities Australia suggests Australian universities could stand to lose $16 billion by 2023, including between $3.1 and $4.8 billion this year

6

Builders: Housing stimulus not needed

Phil Dwyer, President of Builders Collective of Australia – an incorporated association of predominantly small builders – has questioned the need for housing market stimulus, claiming that his members are as busy as ever: Phil Dwyer: “I can’t imagine why it’s taking place… I don’t think it’s needed. Tradies are very busy. We haven’t slowed

36

NBN goes ‘back to the future’ with copper rollout

One of the biggest knocks against the Coalition’s National Broadband Network (NBN) is that it in many neighbourhoods, it chose to stick with the old copper network instead of fibre optic networks. While this decision saved money in the short-term, it also has limited the NBN’s speeds, as well as reduced its reliability. Strangely, the

22

Grattan: Social housing stimulus better than home owner grants

The construction sector employs more than one in every 10 Australians, but it has lost almost 7% of its workforce since March because of the impact of COVID-19. With the Morrison Government expected to this week announce a stimulus package for the sector, centred around grants to those who buy newly built homes and renovations,

16

Telstra divides and conquers NBN

History doesn’t repeat but it sure does rhyme. In 2011, the Gillard Government agreed to pay Telstra $9 billion in instalments for its fixed line customers to migrate to the National Broadband Network (NBN). This decision was made, in part, to remedy the structural mess made by the Howard Government when it privatised Telstra in

13

Business, unions decide reform is too hard

Big news: nothing will happen! At New Daily: Streamlining awards and overhauling enterprise bargaining agreements is worth it for working people, the head of Australia’s largest union says. Australian Council of Trade Unions head Sally McManus says she will be genuinely listening to employers’ groups. “We’re going to give it a go and we reckon

24

ScoMo: No extension to JobKeeper

Speaking to Sky News this morning, Prime Minister Scott Morrison pushed back against union calls to extend JobKeeper payments beyond its legislated late-September expiry date: “These are temporary measures and it is important that we get the economy out of ICU as quickly as we can. we can’t have Australians living on borrowed money for

117

ScoMo readies massive housing stimulus

Last week, we witnessed coordinated lobbying efforts by Australia’s three main housing groups – the Property Council of Australia (PCA), the Housing Industry Association (HIA) and Master Builders Australia (MBA) – calling for subsidies to stimulate new home construction alongside a quick return to mass immigration. This came after the HIA forecast that new dwelling

27

McKibbin on what to do with the $60bn

What to do with the “extra” $60b? – broader coverage of Jobkeeper and – think about how to spend in September because “the world economy is going to be in a bad state by that time” Professor Warwick McKibbin on #TheBusiness last night pic.twitter.com/h0qnzHZzT7 — Elysse Morgan (@ElysseMorgan) May 26, 2020 My view is just

32

“Jobfaker”: Scotty from Marketing rebrands nothing burger reform

Via the AFR: Scott Morrison will use $1.5 billion in federal funding as leverage to force nationwide change to the skills sector, and he will call for a new Accord-style relationship with trade unions and business, to help drive an economic recovery he envisages will take between three and five years. …”We must enable our

5

S&P slaps Ponzi Pallas on downgrade watch

Via S&P: Overview • We expect the COVID-19 pandemic and associated government response to place significant pressure on the State of Victoria’s fiscal metrics during 2020 and 2021 before they improve in 2022. • We forecast Victoria will incur large operating deficits and higher-than-budgeted after-capital deficits, resulting in a substantial rise in debt levels. •

21

650,000 Aussies face COVID-19 lay-offs

The majority of the Morrison Government’s COVID-19 support measures are due to conclude at the end of September. These measures include the JobKeeper program, the expanded JobSeeker allowance, and the loan guarantee scheme for small and medium businesses. Although some sections of the economy are showing signs of recovery, the majority of economists believe that

17

Credit Suisse: JobKeeper on the way out

Via the excellent Damien Boey at Credit Suisse: Missing $60 billion of stimulus. Just after the Australian Office of Financial Management (AOFM) revealed plans to lift bond issuance requirements to $130 billion, the Treasury and Australian Tax Office (ATO) revealed a significant shortfall in the size of the “Job Keeper” stimulus program. The Treasury and ATO are now

6

Minerals Council flogs company tax dead horse

The Minerals Council of Australia (MCA) has urged the federal government to reduce the company tax rate as part of its post-coronavirus economic strategy. MCA CEO Tania Constable says the nation’s corporate tax rate is not internationally competitive, and measures such as tax reform and speeding up project approvals could prompt a new wave of

15

Grattan Institute destroys high speed rail

Following Anthony Albanese’s pledge to build a High Speed Rail (HSR) line linking the east coast capitals if Labor wins the next election, the Grattan Institute has released a report, entitled “Fast train fever”, comprehensively demolishing the idea: Australia should dump the decades-old dream of building a bullet train from Brisbane to Melbourne via Sydney

10

Fitch slaps Australia on downgrade watch

Bye, bye AAA: Fitch Ratings has affirmed Australia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘AAA’ and revised the Outlook to Negative from Stable. KEY RATING DRIVERS The Negative Outlook reflects the significant impact the global coronavirus pandemic has on Australia’s economy and public finances. Growth will fall sharply in 2020 and government spending in

13

NBN tax crushes competition

The Senate recently approved a $7.10 a month broadband tax for residential and business users of non-National Broadband Network (NBN) services. This tax will begin from 1 July 2020 and will subsidise the bills of people connecting to NBN’s loss-making fixed wireless and satellite technologies in regional areas. According to AusDroid, 5G mobile operators like

14

‘Fiscal cliff’ looms as JobKeeper deadline nears

University of Melbourne labour economist, Mark Wooden, says the federal government should use an upcoming review of JobKeeper wage subsidy scheme to fine-tune it. Other economists agree that the scheme should be adjusted so that it targets sectors of the economy that continue to be hardest hit by the coronavirus pandemic. Meanwhile, Danielle Wood from

11

Now’s not the time to prune the government money tree

Economic consultants, AlphaBeta, have updated their real time tracker on the Morrison Government’s stimulus package, and asks “is it time to end the government money tree?”: Infection rates are down, spending is up. Time to wind back the generous government support programs, right? Wrong. AlphaBeta & illion’s real time tracker shows the overall trend of

23

Administrators push for Virgin bailout

With Virgin fast running out of cash, its administrator, Vaughan Strawbridge, has called for a government loan to fund the sale process: Virgin, which is estimated to be burning through about $15 million a week, has about $100 million left in the bank. Binding offers are due in less than four weeks, on June 12,

36

JobKeeper ‘gamed’ but ATO on case

More than 6.3 million workers are currently having their wages subsidised via the federal government’s $130 billion JobKeeper scheme. However, tax experts have warned that some businesses are exploiting the scheme by withholding invoices from clients for a month so they can meet the revenue reduction thresholds in order to quality for it. Bob Deutsch

7

Forget lifting the minimum wage, raise JobSeeker instead

Another fight is brewing over Australia’s minimum wage. The Australian Council of Trade Unions (ACTU) is pushing for a 4% ($30 a week) increase: “Delaying increases in the minimum wage will delay the recovery from coronavirus and mean unnecessary hardship for millions of working people and their families,” an ACTU spokesman said. “Local businesses will