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.

5

UBS: No fiscal coming, RBA forced to cut

Via the excellent George Tharenou at UBS: Treasurer Frydenberg will soon release the Commonwealth Budget update (MYEFO), likely on December 16. Positively, the Final Budget Outcome for 18/19 already beat April’s Budget estimate by a significant $3.5bn (UCB basis), with the $0.7bn deficit outcome (i.e. ~’balanced’) the smallest since the GFC. Furthermore, monthly data for

17

Marketisation of education has failed

Cross-posted from The Conversation: The Morrison government’s waiving of almost A$500 million in dodgy vocational education and training debts holds many lessons about the nature of education and public services being provided by for-profit enterprises. The debts were collected by about 38,000 students unwittingly locked into federal VET FEE-HELP loans by dodgy for-profit education providers.

5

Melbourne Metro joins long list of infrastructure bungles

I have noted previously that one of the key reasons why Australia’s high population growth (immigration) is lowering the living standards of existing residents is because of the strain that it places on infrastructure, which inevitably leads to more congestion on roads, public transport, as well as more expensive housing. Basic math (and common-sense) suggests

31

Sad old men condemn Aussies to shit economy

For once in my life I agree with Australia’s rent-seeking CEOs, at the AFR: Australia’s top chief executives say the federal government must intervene to stimulate the economy through infrastructure spending and tax cuts, and have lamented the nation’s failure to properly tackle climate change and to develop a strong innovation policy. While the nation’s

36

Jaded Gittins pleads for budget honesty

Via a demoralised Ross Gittins: The mid-year budget update we’ll see next Monday presents the government and its econocrats with a threshold question: can their battered credibility withstand one more set of economic forecasts based on little more than naive optimism? Or won’t it matter if first the industry experts, and then the Quiet Australians in voterland,

3

VET rorters get away Scot-free

It was described as the “biggest public policy scandal in Australian history: the systematic rorting of the vocational education and training system (VET)”. It was the reckless policy first introduced by the Howard Government and then expanded by the Gillard Government, which gave private VET providers virtually unregulated access to government subsidies for every student

7

Health insurance crisis looms

Medibank Private’s chief customer officer David Koczkar and NIB Holdings MD Mark Fitzgibbon have stressed the need to reign in rising costs in Australia’s health care system, which is slowly being crushed by rising claims. From The Australian: “There has never been a more urgent time for further reform to drive down the cost of

17

Bill Evans: Weak growth trashes RBA and Budget outlook

Via Bill Evans of Westpac: The Australian economy grew by a disappointing 0.4% in the September quarter for annual growth of 1.7%. Of most concern is that this represents the fifth consecutive quarter where private final demand, which declined by 0.3% in September, either contracted or was flat. Within private final demand the most surprising

29

ScoMo takes axe to public service

The Morrison Government is reportedly poised to slash Australia’s public service in a bid to reduce ‘red tape’ and save on costs: Scott Morrison is poised to put an axe through the public service today with plans to dramatically cut the number of government departments with another round of mandarins set for the chopping block.

78

L-plate Treasurer Frydenberg has done what the GFC couldn’t

Congratulations. L-plate Treasurer Josh Recessionberg has done it: “The government’s goal has always been to be that to put more money in the pockets of the Australian people and it is their choice as to whether they spend or save it. “If people pay down their debt, then ultimately in the long run, they will

1

Academics: Infrastructure privatisation ripping-off Aussies

In September last year, ACCC chairman Rod Sims explicitly warned state governments against accepting unsolicited bids for infrastructure projects because they generally lead to “higher costs for taxpayers, drivers, or both”: “The ACCC considers that state governments should only award new toll road concessions through a competitive bid process, and not following an unsolicited proposal

11

Private health insurers facing “demographic death spiral”

The Grattan Institute has released another report warning that Australia’s private health insurance industry is facing a “demographic death spiral” from an exodus of younger, healthier members, which requires urgent action to resolve. Below is the report summary, along with key graphics: The Australian private hospital insurance system is unsustainable in its present form. The

22

NBN tax to stifle competition

The Morrison Government has announced that it will implement a broadband tax for residential and business users of non-NBN services: Under the bill, announced by Communications Minister Paul Fletcher, households and businesses not using the NBN will be hit with a $7.10 monthly fee. That’s $85 Over the course of the year. The proceeds of

5

Grenville: Ignore ratings agencies and spend!

At the AFR, monetary curmudgeon Stephen Grneville is making sense: Rating agency Standard and Poors has just issued its usual finger-wagging warning to Australia about the dangers of budget deficits. …The issue of the moment, however, is what to do about an economy which is performing well enough, but growing just a little too slowly

3

VET fee scandal slugs taxpayers another $500m

It was described as the “biggest public policy scandal in Australian history: the systematic rorting of the vocational education and training system (VET)”. It was the reckless policy first introduced by the Howard Government and then expanded by the Gillard Government, which gave private VET providers virtually unregulated access to government subsidies for every student

1

Deloitte also lost in the Budget past

Deloitte also lost in the Budget past today: The economy and the budget usually move together. If the economy weakens, that typically eats into the tax take and lifts the welfare bill.  But that usual linkage broke down of late, with the economy weakening at the same time the budget improved.  That has led to

6

Young Aussies bear brunt of public service cuts

History never repeats but it sure does rhyme. Upon being elected in March 1996, the Howard Government commenced a program of cutting spending and jobs across public sector agencies, only to then hire an army of consultants and contractors. The grand irony from the Howard Government experience was that many of the contractors were the

1

Australia’s retirement system warped by houses

Although older Australians have captured an increasing share of Australia’s wealth: Largely because they have increased their home ownership rates over the past 55 years at the same time as home values have skyrocketed: The situation is nowhere near as rosy for Australia’s renting pensioners, who have the highest rate of rental poverty in the

2

Grattan: Private hospitals less efficient than public

Earlier this week, The Grattan Institute released research arguing that gouging by specialists at private hospitals is driving up private health insurance costs and premiums. Interestingly, this report claimed that private hospitals are actually less efficient than their public hospital counterparts: Private hospitals need to lift their game too. They are less efficient than public

1

Auditor-General slams Dan’s dodgy West Gate Tunnel deal

In late 2017, the Victorian Labor Government completed a shady $6.7 billion deal with Transurban to build the West Gate Tunnel Project, which will see Transurban contribute $4.4 billion towards the cost in exchange motorists paying $15 billion in additional tolls on CityLink until 2045. Former Premier Jeff Kennett described the deal as “absurd” and

5

ATO fights back on backpacker tax

Last month, the Federal Court struck down the Coalition’s controversial ‘backpacker tax’, introduced in 2016, ruling that it is unlawful to charge non-residents higher taxes than Australian residents. Now, the ATO has appealed the case: The tax on working holiday makers meant foreign travellers on 417 or 462 visas, who earned less than $18,200, were

2

Regional schools now also crush-loaded

The Coalition’s plan to divert migrants to the regions has already run head first into reality, with schools in the regional Victorian city of Ballarat bursting at the seams after experiencing strong population growth: Population growth continues to put pressure on Ballarat’s booming secondary colleges, with the number of year sevens set to start high

6

Australia’s retirement system unprepared for home free future

Cross-posted from The Conversation: Asked to conduct an independent review of Australia’s retirement income system, the panel appointed by treasurer Josh Frydenberg reported on Friday that it was all tied up with the family home. At every age range, Australians have more money saved through home ownership than they do through superannuation or anything else,

36

Turnbull contradicts himself on NBN

In 2013, former Communications Minister, Malcolm Turnbull, abandoned plans to build a fibre to the premise (FTTP) National Broadband Network (NBN) across the majority of the country, instead replacing it with a multi-technology mix that included previously retired copper cabling. This change was marketed as a cost-saving move. However, the huge amount of rectification works