By Leith van Onselen Over the weekend, The Australian’s Judith Sloan published a remarkably one-eyed critique of Wayne Swan’s record as Treasurer: Perhaps the most glaring failure of Swan’s tenure as treasurer was the non-delivery of a budget surplus in 2012-13. Notwithstanding the oft-repeated (and warranted) commitment to return the budget to surplus last financial
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 The Australian newspaper has today run an article arguing that Budget revenues are facing a potentially big revenue upgrade due to the sharp fall in the Australian Dollar, which has depreciated by around 10 cents since the 2013-14 Federal Budget was announced in May: THE tumbling Australian dollar is set to
By Leith van Onselen The New South Wales Government this afternoon released the State Budget for 2013-14, which revealed a steady improvemnent in Budget finances, with a deficit of $329 million expected in 2013-14 (compared with previous forecast of $423 million), followed by surplus of $829 million in 2014-15 (down from $1.3 billion forecast). The
Regular readers will know that I like to keep an eye on 5 year bank CDS prices as a guide to underlying wholesale funding costs. I noted in February when CDS prices fell below 100, which had been the price floor throughout the European crisis. Since then prices have fallen steadily to 70. However, over
Fresh from Moody’s: Sydney, June 06, 2013 — Moody’s Investors Service says that South Australia’s 2013/14 budget — which was released today — shows a deterioration in the state’s expected financial performance for 2013/14, followed by an expected improvement in 2014/15. The state then anticipates moving into a surplus position by 2016/17, following a temporary
By Leith van Onselen As expected, the Queensland Government has today announced a budget deficit of $7.6 billion for 2013-14, breaking an earlier promise that the government would return the budget to surplus next financial year. The result follows an estimated $8.6 billion deficit this financial year. The miss to budget forecasts was driven by
By Leith van Onselen Little-by-little, inch-by-inch, the common misconception that the Howard/Costello Government were fiscal superheroes is unravelling and the truth is being revealed. The latest salvo came from the Sydney Morning Herald’s economics editor, Ross Gittens, who published a well reasoned article on Saturday arguing that the lion’s share of the current budget deficit
Cross-posted from Mark the Graph. In today’s charts we can see repeated overly optimistic Treasury forecasts for GST revenues compared with the less dramatic actual revenues. While the estimates in the Budget papers for 2008, 2009 and 2010 may have been plausible at the time, I have real doubts about the plausibility of the 2012
By Leith van Onselen The Australian newspaper today contains some interesting discussion on the state of Federal Government budget finances, which it argues are likely to remain in deficit for a prolonged period of time following reckless tax and spending decisions undertaken by both the formal Howard Government and the current Labor Government, which has
By Leith van Onselen Yesterday, Shadow Treasurer, Joe Hockey, delivered his budget reply speech to the National Press Club (below), which contained some spurious assertions about the causes of recent budget deficits, whilst ignoring the former Howard Government’s role in creating the current structural budget deficit. Let’s take a look. The Government’s sixth budget fundamentally
By Leith van Onselen From the AFR today comes news that the Coalition has identified $75 billion of expenditure cuts and tax increases over the next four years required in order to address the “fiscal emergency” and return the Budget to surplus: As well as the $43 billion in cuts and tax rises contained in
Cross-posted from The Conversation More than a decade ago the federal treasury produced the first Intergenerational Report (IGR), warning of the challenges facing the Australian economy due to demographic change. The IGR warned that the living standards of future generations would depend on the decisions made at that time. Unfortunately budgetary decisions made in the
By Leith van Onselen Tonight’s Budget reply speech from Tony Abbott is set to be yet another display of “small target” politics. We can expect the Opposition leader to bag-out the Government’s financial record, all the while recycling the myth that the former Coalition Howard/Costello Government was a sound financial manager, a view debunked recently
It is quite something to watch how far out of step Australia’s political Budget narrative is with the reality of the current and future role of government spending in the economy. The Opposition’s constant attacks, along with the loon pond agenda loose in the MSM business press, has everyone thinking that this Budget is a
By Leith van Onselen Finally, a mainstream commentator – Jessica Irvine – has nailed the dilemma facing the Federal Budget, irrespective of who wins office in the upcoming election. From News.com.au: Australia’s economic party is well and truly over. …Our once in a century mining boom is at an end and we have precious little
By Leith van Onselen Well, the 2013-14 Federal Budget is in the bag and apparently Australia is headed back into Budget balance by 2015-16 and into surplus by 2016-17: For this year rather than a small surplus we will see an $18 billion deficit and $19.4 billion miss from last year’s forecasts. Here are the
You can read UE on the optimistic assumptions underpinning last night’s Budget. They are now universally understood as risky. The question is, why? We could assume Treasury is a fatal optimist. It would not be without foundation. It’s embrace of the “sell ’em dirt” policy over the past few years has been spectacular. And Treasury
By Leith van Onselen In today’s MacroBusiness podcast with Houses & Holes, I discuss three medium to long-term headwinds that are facing the Federal Budget, which are likely to lock the Government into deficits for years to come irrespective of who wins office in the upcoming election. The first of these headwinds are the falling
From the AFR: Foreign Minister Bob Carr has confirmed Australia will delay for another year a commitment to lift foreign aid to 0.5 per cent of gross domestic income. As the Australian Financial Review reported on Monday, the measure could save as much as $3 billion. The cuts will see Australia’s foreign embassy in
The drip feed of exclusive Government budget cuts to the AFR continues today with carbon tax cuts next on the chopping block: Labor’s carbon package is in tatters, with $1.4 billion of tax cuts scheduled for 2015 to be dumped in next Tuesday’s budget, and cuts to clean-energy initiatives, because a slump in the European
From the AFR this morning: The shortfall in forecast budget revenue will be between $60 billion and $80 billion from now to 2016, forcing the Gillard government to dump spending pledges, including $1.8 billion in family assistance. Next week’s federal budget will reveal the total write-down in tax collections in the current financial year will amount
From the AFR this morning comes the news that: Federal Treasury has downgraded its economic growth forecast for this year and next by a quarter of a percentage point, predicting a slowdown that would dent tax revenue and make it even harder to deliver a budget surplus. As it finalises the budget’s economic forecasts, Treasury has
Reda Cherif, economist at the IMF, and Fuad Hasanov, economist at the IMF. Cross-posted from VoxEU. Europe’s austerity-first approach has triggered research-based efforts to evaluate the effectiveness of debt-reduction strategies. This column, based on a US empirical study, suggests that an ‘austerity shock’ in a weak economy may be self-defeating. Public-debt reduction historically occurs gradually amid
The AFR is reporting today that: The federal government is scrambling to find more than $3 billion of additional savings in the two weeks before the budget after Treasury halved the projected price of carbon when Australia links to the European scheme. The government plans revise down the projected price of carbon in 2015-16 from
The assumptions behind the current parameters of the budget debate are wrong. Discussion is being dominated by the loon pond that has occupied the business media and has either no idea what it is talking about or has a vested interest in seeing the LNP elected. Take your pick. The loon pond frame is set
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