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.

4

Property lobby backs PC stamp duty land tax switch

By Leith van Onselen The Productivity Commission’s (PC) latest report, entitled Shifting the Dial: 5 year productivity review, included a recommendation for 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 commercial

12

Morrison spruiks “urgent” company tax cuts

By Leith van Onselen Scott Morrison just won’t let the Coalition’s company tax cut package die, declaring the ‘reform’ “critical” amid slumping productivity growth. From The Canberra Times: Treasurer Scott Morrison has declared business tax cuts are “urgent” as productivity growth dwindles and competitor economies prepare to slash company tax rates in a bid to

48

NBN to punch big hole in Budget

By Leith van Onselen Yesterday, Prime Minister Malcolm Turnbull warned that the $49 billion National Broadband Network (NBN) may never earn a profit. Today, it has been reported that the NBN could soon raise the Budget deficit because the federal government is required to adjust its Budget treatment of the NBN if its commercial return

17

NSW light rail farce intensifies

By Leith van Onselen I noted yesterday how secret NSW Government documents were released late last year revealing that the Parramatta Light Rail Project – the centrepiece of the Government’s plans to cement Parramatta as Sydney’s second central business district, as well as facilitate the building thousands of apartments around Sydney Olympic Park – had

33

NSW Government tries to hide light rail white elephant

By Leith van Onselen This site has gone to great effort exposing the pitfalls of the ACT Light Rail Project. Late last year, secret NSW Government documents were released revealing that the Parramatta Light Rail Project – the centrepiece of the Government’s plans to cement Parramatta as Sydney’s second central business district, as well as

12

Low wages growth to scuttle return to Budget surplus

By Leith van Onselen Last week, the Parliamentary Budget Office (PBO) released report claiming that middle-income earners will bear the burden of bracket creep (aka ‘fiscal drag’) as wage rises push 1.8 million Australians into higher tax brackets. At the time, I noted that the PBO’s projections around income tax were inflated given they seemed

3

Budget improvements continue on bulks good run

Via Craig James:  The Federal Budget has started 2017/18 where it left off the previous financial year. Payments are lower-thanexpected and revenue is higher-than-expected. Not only are rolling annual aggregates showing improvement, so are the so-called ‘profile’ positions estimated by the Department of Finance.  The Government continues to exercise spending restraint. In fact

15

PBO: Bracket creep to punish middle-income earners

By Leith van Onselen The Parliamentary Budget Office (PBO) has released a new report claiming that middle-income earners will bear the burden of bracket creep (aka ‘fiscal drag’) as wage rises push 1.8 million Australians into higher tax brackets: The PBO’s 2017–18 Budget medium-term projections report identified that the projected return to surplus in 2020–21

82

Coalition desperately tries to avert private health insurance ‘death spiral’

By Leith van Onselen Commentators often talk about 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 power, the faster decline in electricity demand, and the more fixed

8

WA the rightful winner in proposed GST carve-up

By Leith van Onselen Yesterday, the Productivity Commission (PC) released its draft report on Horizontal Fiscal Equalisation (HFE), which approved the overall goal of equalisation between states but also recommended changes to the way in which tax revenues (principally the GST) are distributed. Below are the key points: The basic premise of HFE — fiscal

6

Golden parasite fastens to WA Libs

Sigh, at the ABC: The gold industry is pulling out all stops in its fight to defeat what it claims will be a job-crippling royalty increase. From taking out large newspaper advertisements to inviting key media figures to dinner at fancy restaurants, the mining lobby is leaving no stone unturned in its battle against the

6

WA to receive bigger GST slice

By Leith van Onselen The Commonwealth Grants Commission has backed new plans to deliver a greater slice of GST revenue back to Western Australia via an increase in iron ore royalties. From The West Australian: In an interim decision welcomed by Treasurer Ben Wyatt as a “first good step”, the commission conceded that the way

3

A temporary reprieve for the Budget deficit

By Leith van Onselen The federal budget has been handed a reprieve with the deficit for 2016-17 trimmed by $4.4 billion on the back of faster than anticipated thanks to mini-boom in the commodity prices and corporate profits. From The Australian: Releasing final budget figures for 2016-17 yesterday, Scott ­Morrison said the improved result reflected

37

Should Australia end dividend imputation?

By Leith van Onselen Grant Wardell-Johnson, a partner at KPMG’s Australian Tax Centre, has called for an end to (or major reform of) Australia’s dividend imputation system arguing that it is holding the economy back. From The Australian: Australia introduced the imputation regimen in 1987 and made franking credits refundable for super funds, individuals and

33

Australia’s world class health system has room to improve

Cross-posted from The Conversation: Australia’s health system is unique – much like its fauna. It has been shaped by the nation’s colonial history – the first hospitals were provided by the colonial administrations – and, of course, politics. It’s a curious blend of public and private funding and delivery of health care, with the Commonwealth

11

Health experts’ flawed call for mandatory health-star ratings

By Leith van Onselen Thirty-five health organisations have united to put an eight-pronged action plan to the Federal Government, which includes a 20% tax on sugary beverages. From The ABC: Obesity Policy Coalition [OPC] executive manager Jane Martin said obesity was having a dire effect on the nation’s physical and economic wellbeing. “We have a

31

Private health funds fight the death spiral

By Leith van Onselen Commentators often talk about 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 power, the faster decline in electricity demand, and the more fixed