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.

13

Is a “mammoth spending boost” coming in the Budget?

There should be. But Domain seems confused about “should” versus “will” means: A mammoth spending boost is being planned for the October budget to launch new construction projects that can create jobs, with the federal government promising more money and focus on long-term infrastructure. Deputy Prime Minister Michael McCormack named water supply as a key

8

Morrison readies unemployed crusher

Via The Fake Left: A low-paid Australian worker laid off during the pandemic will receive the third lowest unemployment benefit in the OECD when the coronavirus supplement is reduced, according to expert analysis. Despite mass unemployment and an extended stage-four lockdown in Melbourne, the federal government plans to push ahead with a $300 cut to

16

Morrison Government wins War of Stupid with RBA

Last week was a seminal one for the Australian economy and investment outlook. We now have a clear view of what the post-COVID world will look like from the point of view of Australian policymakers. For the last few years, that outlook has been a War of Stupid between overly tight monetary policy versus overly

29

Australia Post: Another marketised public service gone wrong

Question: What does Australia Post and Australia’s universities have in common? Answer: They both screw over their low-paid insecure staff while paying senior management exorbitant salaries and bonuses. Seriously, check out these shenanigans from Australia Post, with its highly paid executive team lining up $7 million in bonuses while it expects staff to volunteer to

3

Coalition half right on JobSeeker

Labor opposition leader, Anthony Albanese, used used Sunday’s ABC Insiders program to attack the Morrison Government’s lowering of the JobSeeker supplement from $500 to $250 from next month, which will cut fortnightly JobSeeker payments to $810: ALBANESE: The economy is really struggling. The idea that you withdraw support in the current circumstances is, in my

21

Business lobby demands tax cuts now!

Six weeks out from the federal budget, Australian Industry Group CEO Innes Willox has stepped up his campaign for tax cuts for both individuals and companies: “For the 2020-21 budget it would be premature and detrimental to both the near and longer-term objectives to hold back on well-considered measures even though they will add to

11

UBS does the fiscal cliff

A couple of charts thanks to the excellent UBS team: Risk of lockdown extension means outlook driven by how much stimulus is left With an increasing risk that Victoria’s lockdown is extended, limiting the labour market recovery, the outlook for Australian consumption and GDP depends on how much stimulus money is ‘left over’, given an

15

VET fee scandal slugs taxpayers another $2 billion

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

30

Pensioners demand more taxpayer cash

Earlier this month, the ABS reported an 0.8% fall in the cost of living for Aged Pensioners, which follows the 1.9% decline in the Consumer Price Index: On the back of this fall, a parliamentary committee this week heard that the indexation formula used to determine the increase in government pension payments meant there would

32

NBN is already obsolete

Australia’s $51 billion National Broadband Network (NBN) is not even finished but already requires upgrades to compete against new emerging technologies, such as 5G, at an additional cost of $7 billion: NBN Co is considering upgrading its problem-plagued fibre-to-the-node (FTTN) and fixed wireless footprints to fibre-to-the-premises (FTTP), a report in telco industry newsletter CommsDay claimed

33

NBN divided and conquered by Telstra

The ABC’s business editor, Ian Verrender, reports that the National Broadband Network (NBN) has been plagued by cost over-runs and delays in its rollout. This is due primarily to the decision to use a mix of fibre-optic and copper cables, alongside the generous $11 billion deal struck by the Gillard Government to compensate Telstra for

1

Westpac: Aussie bonds to outperform

Via Westpac: In last week’s biannual parliamentary testimony before the House of Representatives Standing Committee on Economics, RBA Governor Lowe made some specific references important to the bond market. His position on borrowing and budget deficits is quite clear: “By borrowing today to support the economy we are avoiding an even bigger loss of output

11

Will COVID-19 lead us to monetary financing?

CBA’s head of Australian economics, Gareth Aird, asks this question today: The economic consequences of the COVID-19 pandemic will be long lasting. Labour market slack will remain elevated for many years which will supress wages growth and see monetary policy remain highly accommodative for an extended period of time. Private sector credit growth will be

11

CBA: bring forward personal tax cuts

Amid the slowest wage growth in the nation’s history, the CBA is urging the Morrison Government to bring personal forward tax cuts: Commonwealth Bank senior economist Belinda Allen said the combination of slowing wages growth and the tapering of government support measures such as JobKeeper meant Treasurer Josh Frydenberg should use the October budget to

17

Tell him he’s dreaming: Perrottet’s stamp duty reform fails cost-benefit

By Jesse Hermans, Policy Director at Prosper Australia, an NGO focussed on tax reform. The Thodey Review’s draft report is right to place land tax at the centre of its vision for state tax reform. Replacing stamp duty with what the Review called “the states’ best tax lever” has the potential, if enacted sensibly, to

5

Australia must shift funding away from universities to TAFE

New research from the Centre for Future Work highlights the economic contribution of Australia’s Technical and Further Education institutions. It has estimated that the TAFE system generates more than $6 billion in direct economic activity each year, while its total annual economic benefit is $92.5 billion. This equates to 4.5% of Australia’s GDP. The Centre

6

First home buyers rush deposit subsidy scheme

Data has been released on the Morrison Government’s first home buyer (FHB) deposit subsidy scheme, which reveals that more than half of all spots have filled in the second tranche, which opened in July: About 4500 spots are pending and more than 1000 application certificates have already been approved… Minister for Housing and Assistant Treasurer