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.


NBN: A $50 billion white elephant

By Leith van Onselen ACCC head, Rob Sims, has hit out at the $50 billion National Broadband Network (NBN), claiming that many households are paying more for worse internet. From The Australian: Australian Competition & Consumer Commission boss Rod Sims yesterday warned NBN Co was failing to deliver on its promise of faster and affordable


Inequitable Coalition tax cuts to blow $30b budget hole

By Leith van Onselen The Australia Institute (TAI) has released analysis of the Morrison Government’s tax cut package, which reveals that they will make Australia’s tax system far less progressive with benefits flowing overwhelmingly to higher income earners: The centrepiece of this budget is large income tax cut that builds on the large income tax


Consumers give Budget the bird

Via ANZ weekly consumer confidence: The fall in confidence last week would be seen as disappointing in Canberra given the near-term boost to household incomes delivered in the Budget. Given the usual volatility in the weekly data, we don’t believe the decline indicates a negative response to the Budget. Rather, it suggests the announcements failed


The international student boom has destroyed higher education

By Leith van Onselen Earlier this year, the Victorian Government called for a review of entry requirements into Australian universities after growing evidence that foreign students with poor English language proficiency are badly eroding education standards as well as placing undue strain on university teaching staff. Immediately afterwards, academics admitted to Fairfax that they had


Hysterical Terry McCrann has Labor meltdown

By Leith van Onselen NewsCorp’s Terry McCrann has spent years penning ludicrous attacks on Labor’s negative gearing reforms. Over the weekend, he branched out even further claiming that a vote for Bill Shorten and Chris Bowen would be a vote for the “end of the world”. From The Australian: Bill Shorten and Chris Bowen have


Coalition uses essential workers as Budget human shield

By Leith van Onselen For years, the Coalition has used nurses, teachers and police as a human shield against Labor’s negative gearing reforms, arguing that they would be hurt most if negative gearing concessions were removed. For example, here’s what Treasurer Josh Frydenberg said in October: About two-thirds of those with negative geared properties have


Joye goes gaga for fiscal stimulus

Some real blah today from our Chris: This budget offers substantial support for an economy navigating its way through conflicting cross-currents created by a $100 billion infrastructure building boom, improving business investment and record trade surpluses that are juxtaposed against the largest housing correction in over 40 years, which many fear will sap consumption. According


Stamp duty bust triggers Victorian Budget austerity

By Leith van Onselen Last month we noted how the impending stamp duty bust in Victoria was already crimping public spending, with the Andrews Government forced to tighten its belt ahead of pay negotiations with the public service. The day after, State Political Editor for The Age, Noel Towell, reported that Victorian Treasurer, Tim “Ponzi”


There is no silver bullet (train)

By Ross Elliott, cross-posted from The Pulse: A proposed High Speed Rail connecting Melbourne with Sydney and Brisbane is getting favourable press. But what are the hurdles and how would it compare with existing modes of intercity travel? “We should bite the bullet and go for a high-speed rail connection not just through to Sydney


Shorten outbids Scummo on everything

Via New Daily comes a summary of the Budget reply: INFRASTRUCTURE Labor has identified transport plans and projects “ready to go” in every state and territory. They include Cross River Rail in Brisbane, Western Sydney Metro, Suburban Rail Loop in Melbourne, Bridgewater Bridge in Tasmania, South Road in SA, Metronet in Perth, upgrading roads around Kakadu, and Phase 2 of the


Desperate Gotti launches nonsensical franking credits attack

By Leith van Onselen Grand poohbah of the grey gouge, Robert Gottliebsen (“Gotti”) has launched another desperate attack on Labor’s franking credit reforms: Chris Bowen has sold the younger generation the proposition that stopping cash franking credits is fair. So they are not listening to their parents or anyone else… Many younger people do not


Economists trash Budget’s wage growth unicorn

By Leith van Onselen A conga-line of economists have queued up to ridicule the Federal Budget’s heroic wage growth forecasts. Fairfax captures the mood: ANZ economists said the forecasts around wages were “overly optimistic”, adding that wage growth at that level “seems unlikely given the underlying assumption of stable employment at 5 per cent… AMP


2019 Budget introduces new super grey gouge

By Leith van Onselen In 2005, former Treasurer Peter Costello implemented the mother of baby boomer bribes in the form of the “transition-to-retirement” (TTR) rules, which allowed those aged over 55 to legally minimise their tax by salary sacrificing up to $35,000 into a superannuation account and then simultaneously withdrawing the funds as income. In


Are FHB grants dead?

Let’s hope so. Even Domain can’t get the quote it really wants today: Experts are hoping for more focus on housing policy from Opposition Leader Bill Shorten’s budget reply speech on Thursday evening than was offered in the budget itself. …Grattan Institute fellow Brendan Coates offered cautious backing for the proposed tax reforms. “Those are


Coalition backflips on Newstart stinginess

By Leith van Onselen Yesterday, we lashed the federal government for excluding unemployed Australians from receiving one-off payments to compensate for rising energy costs, as well as refusing to lift the base rate of Newstart. Thankfully, the Coalition has preformed a backflip this morning, extending the energy payment to Newstart recipients: Just over 12 hours after


QLD Budget facing $1.3b stamp duty hit

By Leith van Onselen While Brisbane has avoided the type of property price declines seen in Sydney, Melbourne and Perth: Sales volumes have tanked by 27% from their February 2016 peak: Together, this has driven a sharp $1.3 billion downgrade in projected stamp duty receipts for QLD’s Budget. From The ABC: The Queensland budget will


Vic Government calls out Budget’s infrastructure bluff

By Leith van Onselen Last night’s Federal Budget trumpeted the $100 billion of earmarked infrastructure spending over the next 10 years, which Treasurer Josh Frydenberg claimed would “ease congestion in our cities… unlock the potential of our regions… better manage population growth… [and] improve safety on our roads”. As I noted last night, “this level


UBS: Weak fiscal triggers bigger rate cuts

Via UBS: Implications: smaller than expected stimulus raises risk of early/more RBA cuts Overall, as we flagged, the Budget improved modestly due to higher commodities & fiscal conservatism, with the surplus profile supporting the AAA. Household tax cuts & handouts were much smaller than expected; while infrastructure & public demand slow sharply. With credit tightening


Budget exposes Coalition’s fake immigration cut

By Leith van Onselen Ever since the Morrison Government announced that it would cut Australia’s permanent migrant intake to 160,000 in order to “relieve congestion in the cities”, MB has declared it a fake cut. This view is based on the fact that while the permanent intake has been reduced moderately, the government has opened


Budget delays ASIC funding to protect banks

Via Banking Day: Aggrieved financial services consumers might have to wait several years before regulators are adequately resourced to mount court actions against misbehaving and negligent institutions. While community expectations are high that ASIC will launch a wave of civil and criminal actions against financial institutions over the next 12 months, the truth is that


A great Budget for housing affordability

The parasites at Domain are upset: Remember the housing affordability budget? In only two years, Australia’s housing market has gone from a boom that required urgent intervention to help prospective buyers – to a slowdown that poses risks for the economic outlook. This year’s federal budget contains little to help those who still can’t get


Westpac: Budget stimulus “modest”

Forget the big headlines, say Westpac: The 2019 Australian Federal Budget confirms that the underlying cash balance is set to return to surplus in 2019/20. This follows 11 consecutive years of deficit and will be the first surplus since 2007/08, ahead of the GFC impact. The surplus for 2019/20 has been upgraded by $2.9bn since


Federal Budget 2019: Initial Impression

By Leith van Onselen Peeling away the spin, tonight’s Federal Budget delivered by Treasurer Josh Frydenberg was a fairly dull affair. If you believe the forecasts, the Budget will magically catapult into surplus next financial year, with bigger surpluses projected over the forward estimates: While Houses & Holes will analyse these numbers separately, all I


The rise of electric cars needs direct road pricing

By Leith van Onselen Nine months ago, the outgoing chief executive of Infrastructure Australia (IA), Philip Davies, urged the federal government to proceed with a road pricing inquiry or risk facing a revenue crisis: [Davies] said road pricing models will cause “a crisis down the track” because petrol and diesel energies are becoming more efficient and


Once again, Coalition caves into pharmacy rent-seekers

By Leith van Onselen You would be hard pressed to find a bigger racket than Australian pharmacies. How many any other industries in Australia have had laws implemented that ban new entrants from opening within 1.5 kilometers of an existing business? How many other industries allow only registered professionals in the field to own and


PBO fails demography 101 on Ageing Australia

By Leith van Onselen The Parliamentary Budget Office has released new analysis predicting that Australia’s ageing population will see government revenue fall by around $20 billion within the next 10 years. This is due to reduced workforce participation, which results in less people paying tax, whereas spending on the aged is tipped to rise by