By Leith van Onselen Last week it was revealed that the Federal Government’s three-stage personal income tax package will cost $144 billion in total over a decade, with the first two stages to cost $102 billion. The Australia Institute (TAI) also estimated earlier this month that “62% of tax cuts benefits go to highest income earners”,
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.
By Leith van Onselen Rail transport should be in my DNA. My father ran Victoria’s freight railway system for many years and I grew up around trains. I even spent six months post university working in ‘the business’. Even with this background, I have never understood why politicians, ‘experts’ and commentators have an inherent bias
By Leith van Onselen TAFE Directors Australia CEO, Craig Robertson, has accused the federal government of acting like a “pay-day lender” when it comes to the loan fee it imposes on TAFE students. Robertson notes that university students do not have to pay a loan fee, and that the government treats vocational education and training
By Leith van Onselen Since it came to office in late 2013, the Coalition Government has spuiked its plan to push the public service to regional centres in a bid to decentralise the federal bureaucracy. Over the weekend, former Deputy Prime Minister, Barnaby Joyce, labelled the scheme “bullshit”: Former deputy prime minister Barnaby Joyce has
Via the Daily Mail: Cashed up foreign investors are the reason why the federal government is putting a stop to cash payments of more than $10,000. The federal government is cracking down on foreigners buying homes in the Sydney property market with ‘suitcases stuffed with cash’. The restriction on cash payments comes after law enforcement agencies warned
How else to explain this complete rot from The Australian: The overwhelming cost of the Turnbull government’s $144 billion income tax cut plan would go to quarantining millions of middle-income earners from future bracket creep, with only $9 billion in tax relief targeted towards high-income earners. Exclusive data revealing the full 10-year funding envelope of
By Leith van Onselen With the Turnbull Government’s company tax cut package facing near certain defeat in the Senate, the Government has decided to forge ahead with a Senate vote next month as well as take the package to the next election. From The Australian: Turnbull government ministers say they will continue to make the
By Leith van Onselen The infrastructure being built to fix the problems caused by mass immigration continues to pile on the pain for taxpayers in Queen Lucy Turnbull’s Sydney. Hot on the heels of Spanish contractor Acciona demanding an additional $200 million from taxpayers as compensation for delays caused by the NSW State Government relating to the Sydney
By Leith van Onselen Th AFR’s Phillip Coorey has done a good job describing the conundrum facing the Turnbull Government with respect to its company tax cut policy: Inevitably, in the wake of this week’s events, there are murmurs among the Nationals and some others on the backbench to dump the cuts rather than fight
By Leith van Onselen The chorus calling for a lift in Australia’s pathetically low Newstart Allowance for unemployed workers (the ‘dole’) is getting too loud to ignore. In recent times, we have witnessed a huge cross-section of industry groups and commentators calling for Newstart to be lifted, including: Deloitte Access Economics senior partner Chris Richardson;
By Leith van Onselen With the Turnbull Government’s company tax cut package seemingly dead in the water after One Nation’s rejection in the Senate, and Coalition MPs questioning the political merits of pursuing the policy, both The AFR and The Australian have launched rear guard actions backing the package. The AFR has taken direct aim
By Leith van Onselen Treasurer Scott Morrison has finally revealed that the Federal Government’s three-stage personal income tax package will cost $143.95 billion in total over a decade, with the first two stages to cost $102.35 billion. The tax bill was passed by the House of Representatives yesterday, although it is likely to face an
By Leith van Onselen After Pauline Hanson’s latest rejection of the Turnbull Government’s company tax cut package handed the Coalition another opportunity to walk away, it has instead doubled-down: “The government will persist with our plan, which is central to our plan for a stronger economy and more jobs,” Senator Cormann said on Tuesday morning.
By Leith van Onselen The Labor Opposition has indicated it may support the second stage of the Turnbull Government’s proposed income tax cuts package. This would raise the upper threshold for the 32.5% tax rate from $90,000 to $120,000, which would primarily benefit people on middle incomes. Labor’s finance spokesman, Jim Chalmers, claims the party
By Leith van Onselen The infrastructure being built to fix the problems caused by mass immigration continues to create headaches for taxpayers in Queen Lucy Turnbull’s Sydney, with The Australian reporting that the firm contracted to build the Sydney Light Rail Project is demanding another $200 million from taxpayers as compensation for delays caused by
By Leith van Onselen Ross Gittins has lashed-out at “pernicious” long-term Budget projections, calling for them to be outlawed “in the interests of responsible economic management”: It’s supposed to increase transparency and accountability, but in practice does more harm than good, presenting the government of the day with an almost irresistible temptation to portray the
By Leith van Onselen Actuary firm, Rice Warner, has questioned the efficacy of Australia’s retirements system, arguing that action is needed to redress imbalances in the pension system that favours wealthy Australians. Specifically, Rice Warner proposes including a retiree’s principal place of residence in the assets test for the Age Pension above a certain threshold,
By Leith van Onselen While the Turnbull Government and the Business Council of Australia (BCA) continue to insist that reducing the company tax rate is essential to fuel investment, jobs and wages growth, the impact from the recent US corporate tax cuts continues to disappoint, fuelling little more than a boom in share buybacks. From
By Leith van Onselen MB has frequently questioned the merits of government policy that forces Australians into private health insurance, and argued that diverting subsidies away from private health insurance into the public system would lead to more efficient health outcomes. We’ve also warned that Australia’s private health insurance system is facing a ‘death spiral’,
By Leith van Onselen MB has frequently questioned the efficacy of Sydney’s WestConnex toll road and tunnel project – the $17 billion 33 kilometre motorway under construction that is more expensive per kilometre than the Chanel Tunnel. This hideously expensive project will see existing free public roads like the state-owned M4 (that have already been paid
Via the AFR: Labor will pledge to use the majority of the potential $220 billion in extra taxes it plans to raise over the next decade to pay down debt when Shadow treasurer Chris Bowen responds to the federal budget today. In his budget reply to be delivered to the National Press Club on Wednesday,
By Leith van Onselen The Guardian’s Greg Jericho has done a good job dismantling the Turnbull Government’s 7-year plan to cut personal income taxes, which overwhelmingly favours the rich: … in 2016, Scott Morrison took what was a pretty easy win on company tax cuts for small businesses and turned it into a fight on the
By Leith van Onselen Thinktank, the Centre for Independent Studies (CIS), has released a report, entitled Why We Need NAPLAN, defending the NAPLAN school testing system, claiming it is a valuable and accurate assessment tool. The ABC summarises the report as follows: [Report author, Blaise Joseph] asserts there are three key benefits to the test system:
By Leith van Onselen Last week, we attacked the hypocrisy of former Treasurer Peter Costello for slamming the Turnbull Government for not doing enough to reduce government debt, given it is precisely the policy decisions made when he was Treasurer that has placed the Federal Budget in its current precarious position. Today, Peter Costello has dialled-up the
By Leith van Onselen Senate cross-benchers – One Nation and the Centre Alliance – which together control five Senate seats have demanded the Federal Government legislate income tax cuts proposed for 2018-19 separately from future tax relief outlined in last week’s 2018 Budget. One Nation leader, Pauline Hanson, argues there could be a recession before
By Leith van Onselen The AFR reports that the VIC and NSW Governments are facing multi-billion dollar slowdowns in stamp duty receipts as lower sales and falling prices hits revenue: Both states’ Treasuries are warning their governments they might have to tighten their belts after nearly seven years of tax windfalls filled their coffers, the analysis
Nice one from Ross Gittins yesterday: How has this unexpected but wonderful turnaround been achieved? Largely by assumption. Three in particular. First, that despite four or five years of unprecedented weakness in wage growth, wages will immediately begin a steady return to growth of 3.5 per cent a year, without inflation doing anything more than
By Leith van Onselen Late last year, the Turnbull Government implemented university funding reforms to make it harder for students to access the Higher Education Loan Program (HELP) for courses that have poor employment prospects, thereby effectively ending the demand-driven university system established by the Gillard Labor Government. Over the weekend, the federal Labor opposition
And the loser is polling. At The Australian: Malcolm Turnbull’s popularity has leapt to its highest levels since the 2016 election on the back of one of the most well-received budgets in a decade and a $140 billion personal income tax cut plan that has been endorsed by a majority of Australians. The Coalition consolidated
Via David Crowe: “Over the short-term, it’s quite clear that these are modest tax changes and that Labor are ahead in terms of what they offer,” said Australian National University associate professor Ben Phillips. The increase in disposable income has a mean value of $1,039 for households in the middle quintile under Labor compared to