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.

6

HILDA: Welfare spending blowout is a myth

For several years, media outlets like The Australian ran a campaign against the so-called ‘blowout’ in welfare spending, backing claims made by the Coalition Government that nearly half of the population receives more in welfare than they pay in tax. The 2019 Household Income and Labour Dynamics in Australia (HILDA) survey has demolished this myth,

12

NSW Government’s footy stadium farce mushrooms

We argued previously that the NSW State Government had hit ‘peak stupid’ in deciding to spend $2.5 billion to demolish and rebuild the Olympic Stadium and the Sydney Football Stadium, both of which are underutilised. These stadiums were assessed to deliver zero net economic benefits for the state, according to analysis by hired gun KPMG. Moreover, these

11

Pressure builds on government to drop NBN wholesale prices

Telstra chief executive Andy Penn has joined the chorus calling on the Morrison Government to lower wholesale prices for the National Broadband Network (NBN): “Unfortunately, because of where wholesale broadband prices have gone, basically all operators are losing money reselling the NBN, and therefore some — and they’ve said it publicly — are looking at

5

Private health insurance exodus intensifies as young’uns flee

The percentage of Australians aged between 20 and 28 with private health insurance cover for hospitals fell by 6.9% (33,975 people) in 2018, according to data from the Australian Prudential Regulation Authority. The overall percentage of Australians with hospital cover at the end of 2018 was 44.6%, the lowest level since December 2006, whereas the

2

Bloxo: Create a fiscal RBA

Bloxo is back with a suggestion, via the AFR: Having cut its cash rate to a record low of 1 per cent recently, the Reserve Bank of Australia (RBA) is rapidly running out of room to provide further support for growth…forcing the central bank to use unconventional policy tools, such as quantitative easing, at a

52

Cruel ScoMo tells MPs to prioritise pensioners over unemployed

Prime Minister Scott Morrison has told Coalition MPs that any future welfare spending will go to pensioners, not the unemployed: Pensioners will be prioritised ahead of unemployed Australians for any boost to welfare payments as the Morrison government stands firm against growing demands to lift the Newstart allowance. Prime Minister Scott Morrison has told colleagues

4

Nats leader promotes Newstart fraud

Recall that Deputy Prime Minister Michael McCormack has told unemployed job seekers to get off welfare and go bush for jobs: “There are jobs out there in regional Australia, and there are good paying jobs. And what I think we do need in this country is a more mobile workforce. So people have to be prepared to move

20

ScoMo seeks to politicise Australia’s public service

Prime Minister Scott Morrison has revealed plans for a major overhaul of the federal public service, which will include a push for cultural and organisational change. Amongst other things, the reforms will result in increased accountability for senior public servants. The sweeping reforms will coincide with the departure of Martin Parkinson, who will retire as

1

Coalition Government a key player in ‘gig’ economy

Commonwealth Auditor-General Grant Hehir will conduct a second investigation into the federal government’s use of contractors, consultants and labour-hire firms. His first probe indicated that the government was spending so much in this area that Parliament’s joint committee of public accounts and audit ordered an inquiry into its use of external firms. Hehir’s second investigation

7

Backbench turns on cruel ScoMo over Newstart

Via the AFR: Pressure is building within the government over the inadequacy of the Newstart payment after a majority of the Nationals backed an increase, while Liberal senator Dean Smith also broke ranks. With Prime Minister Scott Morrison adamant there would be no above-inflation increase to the unemployment benefit, the Nationals discussed the issue at

3

RBA and ScoMo are at loggerheads over the bubble

Via Domain: Billions of dollars of congestion-easing infrastructure projects that could boost the economy and increase safety are stuck years down the track as the Reserve Bank of Australia calls on the Morrison government to do more. As Prime Minister Scott Morrison promises to pull forward some infrastructure projects, an analysis of the federal budget

10

Aussies raiding super to pay for healthcare

The cost of healthcare is under scrutiny in the wake of revelations that a growing number of Australians are seeking early access to their superannuation to pay medical expenses. The Association of Superannuation Funds of Australia raised concerns about this trend in February, warning that it demonstrates the need for government funding to the healthcare

1

Professor flogs company tax cut dead horse

The University of Melbourne’s John Freebairn argues that reducing the tax rate for larger non-resident shareholders would stimulate economic growth and help to increase wages. From The Australian: Mr Freebairn said lower tax rates for large corporations would provide a “stimulus to the investor”, which would see “GDP grow” and that “some of that goes

16

Private health insurance facing “death spiral” as young’uns exit

The Grattan Institute has released a new working paper, entitled The history and purposes of private health insurance, which forecasts an ‘exodus’ of young and healthy people from the private health system leaving private health insurers struggling to cope with older, sicker patients. This leaves the industry in need of desperate reform: Australia’s private health

5

Pensioner parasites fasten to taxpayer pork

National Seniors Australia (NSA) has reacted angrily to the federal governments changes to the pension deeming rate, accusing the government of having its “hands in pensioners’ pockets at a time when they can least afford it”. From The Guardian: The National Seniors Australia chief advocate, Ian Henschke, said the Coalition’s $600m commitment was welcome, but

36

Lunatic RBA: High household debt curbing spending

It’s always funny to read the RBA – which is partly responsible for Australia’s record household debt load – lamenting that high household debt is curbing spending. Via a new RBA research paper: We explore the relationship between owner-occupier mortgage debt and spending using detailed panel data on Australian households. We find evidence consistent with

62

Cruel Coalition pork barrels retirees, shafts unemployed

Yesterday, Fairfax reported that around 600,000 retirees are about to receive fortnightly pension increases from reductions to the deeming rate – a move supported by Labor: Prime Minister Scott Morrison’s expenditure review committee will consider how to minimise the budget impact of changes to the deeming rate for pensioners, while acknowledging many are feeling short-changed

80

Negative gearing reform is dead, buried, cremated

After unsuccessfully taking its negative gearing and capital gains tax (CGT) reforms to the past two elections, Labor is set to officially dump the policy from its platform. From The Australian: Anthony Albanese has given his biggest signal yet that he will dump Bill Shorten’s negative gearing and franking credits reforms, responding “No” when asked