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.


Dividend cash refunds ‘distort economic system’

By Leith van Onselen The chief economist for the 2014 Financial System Inquiry, Professor Kevin Davis from the University of Melbourne, has expressed support for Labor’s plan to abolish cash refunds for excess dividend imputation credits. Davis says that dividend imputation was intended to prevent the double taxation of corporate profits, and providing franking credit


Keynesian fiscal stimulus becomes Coalition pre-election pork

By Leith van Onselen A few weeks back, Houses & Holes asked “What kind of fiscal stimulus should Treasury be readying?”: It is highly doubtful that Recessionberg will go for anything so crude as cash dumps though Labor probably will in H2. But by then it may be too late to avoid a nasty adjustment.


The solution to Australia’s “high” company tax rate

By Leith van Onselen There was a lot of hoopla last week over new OECD research showing that Australia’s company/corporate tax rate is among the very highest in the world. In case you missed it, here is a summary of the results via University of Melbourne tax expert, Professor Miranda Stewart: The bad news – for


Albo doubles down on high-speed ponzi rail

By Leith van Onselen With an election in the air, Labor’s infrastructure spokesman, Anthony Albanese, has doubled down on a High Speed Rail (HSR) line linking the east coast capitals. From The Australian: As our population tops 25 million, our nation must promote growth in our regions so they can absorb some of the pressure causing


Moody’s: Stamp duty bust, population ponzi to hammer state budgets

By Leith van Onselen Moody’s Investors Service has published new analysis warning that state government budgets are exposed to a stamp duty bust combined with growing financial commitments to support the population ponzi: Australian states’ mid-year reviews (MYRs) reveal that revenue pressures from the housing market correction will partly offset gains from the Government of


High-rise schools an expensive failure

By Leith van Onselen The destruction of Sydney’s residents’ living standards from endless immigration-fuelled population growth is well documented. As the city’s population has ballooned by 960,000 people over the past 13-years, we’ve seen traffic congestion worsen immensely: And housing affordability deteriorate to levels that are amongst the worst in the world: The crush-loading is


Adelaide Uni dumbs down standards to chase foreign student dollar

By Leith van Onselen Adelaide University’s vice chancellor, Peter Rathjen, says he is aggressively targeting growth in foreign student numbers, vowing to grow international student numbers to more than 10,000 in 2019. From Adelaide Now: Under vice-chancellor Peter Rathjen, Adelaide University says it is aggressively targeting growth, mainly to be a more “global” institution. Adelaide projects


Business backs Labor’s 20% asset write-off

By Leith van Onselen Last year, Labor launched its Investment Guarantee, which would see “all businesses in Australia will be able to immediately deduct 20 per cent of any new eligible asset worth more than $20,000, with the balance depreciated in line with normal depreciation schedules from the first year”. The policy appears to have


What kind of fiscal stimulus should Treasury be readying?

The Australian economy is stalling as its key drivers sputter. Fiscal investment is plateauing as infrastructure hits a air pocket, via ANZ: There was a significant pull forward last year: Dwelling construction is about to crash: As house price falls power down: Which is also killing consumption, via CBA: Business investment is OK but capex


L-plate Recessionberg crows about surplus as economy stalls

Via The Australian we get another glimpse of how far behind the economy are our illustrious leaders today: Josh Frydenberg says he will deliver a surplus budget before a federal poll, despite doubts cast on that commitment by a global ratings giant and the possibility of an early election. In contrast to the government’s December


Bowen lashes L-plate Treasurer’s property giveaways

Via The Australian: Shifting his focus from Bill Shorten’s proposal to limit negative gearing to new dwellings and the “retiree tax”, the Treasurer yesterday cited government analysis that showed Australians would be taxed up to 36.75 per cent on their capital gains under Labor’s policy, up from 23.5 per cent now. By comparison, US taxpayers


WA stamp duty bust an ominous warning sign for NSW/VIC

By Leith van Onselen Over recent months, MB has frequently ridiculed the VIC and NSW Governments’ optimistic projections for stamp duty receipts, which have forecast only modest downturns (see red bars below): Despite heavy losses in both dwelling values and transaction volumes: Yesterday, the WA Treasury released its Mid-Year Budget Update, which provided a taste


Million dollar Uni vice chancellor defends foreign student flood

By Leith van Onselen Following yesterday’s article entitled “Australia’s visa system ‘gamed’ by international students”, the vice chancellor of the University of NSW, Ian Jacobs, has defended the university’s extreme reliance on foreign students. From The Australian: …the most frustrating criticism in 2018 has been a growing chorus of commentators chiding the sector for an over-reliance


NAB: Lack of demand, not credit, behind house price falls

By Leith van Onselen While apologists for Australia’s housing correction tell us that it has been caused by the restriction of credit relating to regulatory action and the banking royal commission, the truth has been revealed by NAB chief Andrew Thorburn. From The Australian: Further evidence has emerged of a softening housing market, with National


Moves afoot to legalise pot in Victoria

By Leith van Onselen While the developed world is gradually legalising cannabis, Australia remains stuck in the dark ages following the Senate rejecting a private member’s bill to legalise recreational weed in October. However, there’s been some movement at the state and territory level with the ACT moving to legalise weed next year; although this


PaTH intern program is subsidised slave labour in disguise

By Leith van Onselen The Coalition’s controversial $840 million Youth-Jobs PaTH program – to prepare, trial and ultimately hire young Australians – has been ridiculed at Senate estimated for its abysmal failure to shift younger Australians from welfare into work. From The Age: The new figures show the $840 million program is falling short of


NSW Budget Update hopelessly optimistic on stamp duty

By Leith van Onselen Following on from this morning’s post on the NSW Office of State Revenue’s (OSR) latest stamp duty data, which revealed a $1.2 billion (16%) decline in receipts in the year to October: The NSW Treasury has this morning released its Mid-Year Budget Update, which recorded a slight downgrade in overall stamp


WestConnex has NSW taxpayers bent over a barrel

By Leith van Onselen A NSW parliamentary review into WestConnex has slammed the project for lacking transparency and failing to meet best practice requirements: WestConnex has had a significant and pronounced impact on local communities and families. This has undoubtedly been a very challenging time for those affected… The committee has questions regarding the transparency of


Coalition’s grey bribes to lock empty nesters in family homes

By Leith van Onselen May’s Federal Budget contained various measures aimed at keeping older Australians in their homes, including: billions of dollars in funding for thousands of extra home-care packages; extending the Pensioner Work Bonus scheme, giving older Australians the ability to earn more money without affecting their benefits; and extending the Pension Loans Scheme


Scummo to offer nothing burger tax cut

Via The Australian: Scott Morrison will unveil $10.6 billion in tax cuts and targeted spending before next year’s election in a last-ditch effort to recast his government’s fortunes. With Newspoll showing the Coalition facing a crushing defeat, the Prime Minister will rely on the best budget numbers in a decade, revealed in yesterday’s mid-year economic


NSW stamp duty receipts crash 16% over past year

By Leith van Onselen Following on from yesterday’s post on the $8 billion downgrade to the NSW Government’s stamp duty receipts, the NSW Office of State Revenue has released stamp duty data to October, which reveals a $1.2 billion (16%) decline over the past year: As shown above, annual NSW residential stamp duty receipts ($6,231


Labor balks at raising Newstart

By Leith van Onselen After last week indicating that it would significantly lift Newstart if elected, Labor refused to commit at its national conference. From SBS News: Labor is set to resist an internal push to raise dole payments, holding firm on a commitment to review Newstart rather than lock in a boost… Labor will