Oh dear. Penny Wong is on Radio National this morning describing the revenue misses in the budget claiming that there was no “economist out there who anticipated what is happening in the economy would occur for as long as it is. That is that revenues would be so depressed for so long.” bst_20130430_0740 Perhaps she
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.
The mining propaganda machine is a well oiled and efficient instrument. It works like this: lavishly fund the industry lobby (the Minerals Council of Australia) commission a paid report into any given subject from an “expert economic consultancy” release the result “exclusively” to a major paper to dupe them into thinking they’ve got a scoop
From the AFR: Standard & Poor’s has warned that Australia’s AAA rating could be vulnerable in five years if the credit ratings agency doubts the government’s commitment to restoring the surplus, national debt keeps rising and the economy fails to self-correct. In the short term, S&P has pledged that the rating is secure because net
The ANZ has produced an excellent Budget preview document that is quite easy to follow and instructive. It’s conclusions are as follows: ANZ forecasts the Commonwealth budget to be in deficit by around AUD17bn in 2012-13 and around AUD7bn in 2013-14 when it is released at 7:30pm AEST on May 14. These deficits are small
By Leith van Onselen Yesterday, Jessica Irvine has posted an interesting article on Business Spectator on the budgetary headaches facing the federal government as the commodity price boom unwinds: At one point, nominal GDP was growing 7 per cent plus a year, while the real economy grew just 3 or 4 per cent. As commodity
The Australian Government released its February budget statement late Friday and the result shows a widening in the deficit miss from the MYEFO surplus forecast: The underlying cash balance for the 2012-13 financial year to 28 February 2013 was a deficit of $23,646 million compared to the Mid-Year Economic and Fiscal Outlook (MYEFO) profiling Year to
Here’s a quick query of readers. One of the lesser know features of Australia’s GFC stimulus is that the ATO became very flexible when it came to collecting GST and income taxes. In effect it became overnight a new bank upon which all Australians could draw. Since then I’ve not really noticed much change. But
In his weekly propaganda blast yesterday, Treasurer Wayne Swan put paid to surpluses forever more it seems: While Australia’s economy walks tall in the world with solid growth, contained inflation, low interest rates, enviable public finances and unemployment with a ‘5’ in front of it, we are not without our challenges when it comes to