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

Vultures line up to pick Virgin’s bones

Virgin Australia’s administrator received at least eight non-binding indicative bids for the failed airline on 15 May. Vaughan Strawbridge of Deloitte will shortly draw up a short-list of bidders for the next phase of the sale process, and some are said to be pushing for this to feature just two prospective buyers. Meanwhile, three parties

14

NBN’s completion will lengthen Australia’s dole queue

CEO Stephen Rue has confirmed that the initial rollout of the national broadband network (NBN) is due for completion by the end of June: NBN Co’s announcement of its third quarter results – exceeding its rollout, revenue and activation targets – with the company reporting that it made 670,000 residential and business premises Ready to

3

Dan’s West Gate Tunnel in tatters

Earlier this month, the Victorian government advised that the $6.7 billion West Gate Tunnel project would not be completed in 2022 as originally intended, instead pushing the project back to 2023 over a dispute around the disposal of contaminated soil, Hundreds of workers on the project are now facing the sack amid landfill cost increases:

4

Competitors cherry-pick NBN’s most profitable networks

I have noted previously how Australia’s National Broadband Network (NBN) is facing multiple competitive threats. First, the roll-out of high speed 5G mobile services by Telstra and TPG / Vodaphone threatens to slice the NBN’s market share amongst casual users seeking fast speeds but low download limits. Indeed, Telstra chairman John Mullen recently flagged plans

38

Returning JobSeeker to $280 a week a grave mistake

Prime Minister Scott Morrison has again indicated that the Government will wind back the JobSeeker (formerly NewStart) allowance to $560 a fortnight as soon as possible: There’s no guarantee the government’s income support measures will last the full six months as initially touted, the Prime Minister has revealed in a press conference on Friday… “I

7

Deloitte: Budget butchered

Via Deloitte: Even with the amazing success Australia is achieving in the fight against the virus, the oldest problem in economics is that unemployment goes down much slower than it goes up.  Subject to the important caveat that forecasts are currently subject to really wide bands of uncertainty, Deloitte Access Economics estimates that national income

11

Australia’s public service stripped bare by “cult of consultants”

Former Prime Minister, Malcolm Turnbull, claims that Australia’s public service is no longer able to function effectively after being stripped bare by years of outsourcing: Speaking to InnovationAus’ Commercial Disco podcast as part of a virtual book tour to promote his political autobiography A Bigger Picture, Mr Turnbull said one of the big challenges facing

7

Flip-flopping Labor demands audit into ballooning debt

One week Labor is calling for JobKeeper and JobSeeker to be extended to more than a million temporary migrants, taxpayer bail-outs for all “critical businesses”, taxpayer bail-outs of universities, and taxpayer support for industry superannuation funds that failed to manage liquidity. Now, Labor is calling for an audit into the explosion of federal government debt:

34

Albotross about to dump negative gearing reform?

Via Domain: Federal Labor’s big spending education and health policies appear set for the chopping block as Opposition Leader Anthony Albanese warns his shadow cabinet that COVID-19 and its legacy will define politics for a generation. The Labor leader has told his shadow cabinet to prepare for a “full reappraisal” of the party’s policies in

65

Can abolishing stamp duty save house prices?

Via the excellent Damien Boey at Credit Suisse: NSW  government considering abolishing stamp duty. Stamp duty is a transaction, or “Tobin” tax on property paid by buyers. It is the primary source of state government revenue. It is viewed by many commentators to be an inefficient tax, breeding incentives for state governments to prop up property prices to prop up revenues. Recently, NSW Treasurer

35

Depressionberg’s SME Guarantee Scheme appears to be a joke

It was announced with great fanfare: The Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme will support up to $40 billion of lending to SMEs (including sole traders and not-for-profits). Under the Scheme, the Government will guarantee 50 per cent of new loans issued by eligible lenders to SMEs. The Scheme will enhance lenders’ willingness and ability to

38

How Australia butchered the NBN

Former Prime Minister Malcolm Turnbull’s memoir claims that Australia’s National Broadband Network (NBN) was ill-conceived from the beginning and should never have gone ahead: “[The government] set up a new government-owned company called NBN Co, designed to build over all that linear infrastructure of Telstra. At the outset it seemed like Kevin wanted to put

30

NSW vows to axe stamp duty

NSW Treasurer, Dominic Perrottet, yesterday flagged that the State Government wants to axe inefficient taxes like stamp duty in a bid to revive the economy. The Labor Opposition also flagged their support: Mr Perrottet told Nine that: “We are not going to tax our way back into prosperity”… The treasurer said that stamp duty was at

5

Small businesses receive $6b stimulus payments

Prime Minister Scott Morrison says the federal government’s tax-free cashflow payments have assisted employers to remain in business during the coronavirus pandemic. New figures show that 343,211 small businesses and non-profit organisations had collectively received $6.09 billion worth of cashflow payments by 28 April. Eligible businesses are entitled to receive payments of between $20,000 and

45

NBN faces new competitive threat

Australia’s $52 billion National Broadband Network (NBN) is facing competitive threats on multiple fronts. Over recent months, both Telstra and the merged TPG / Vodafone flagged plans to launch 5G mobile products that would compete head-to-head with the NBN in lucrative capital city areas. NBN Co’s corporate plan initially projected that only 20% of households

6

Property lobby talks its book on tax reform

With support for land taxes rising, the property lobby has responded by demanding that a broadened GST instead replace the abolition of stamp duties: Property Council of Australia chief executive Ken Morrison said he welcomed possible government plans to scrap stamp duty, which he called “Australia’s least efficient and most unpopular tax”, but a shift

24

Under the bonnet, Australia’s terms of trade are falling fast

Nobody cares right now given a world of depressionary data and limitless stimulus but Australia’s terms of trade are correcting fast. Coking coal spot has fallen back to $117 in recent days. Futures are pointing lower ahead. Thermal coal has been monstered to 2015 lows at $56 as LNG collapses across Asia. Spot prices for

12

Privatised Jobactive agencies make pay dirt from COVID-19

Per Capita has released a report which concludes that the coronavirus pandemic will be a financial boon for employment agencies that are members of the federal government’s Jobactive program. The think tank’s report suggests that Jobactive agencies are likely to receive at least $210 million in additional service fees, which is based on expectations that

0

Fitch punches big hole in corporate tax cut as stimulus

Via Fitch today: Economic fallout due to the coronavirus pandemic is the greatest risk for Australian credit markets over the next 12 months, according to 74% of Australian fixed-income investors that took part in the 2020 Fitch Ratings/KangaNews Australian fixed-income investor survey. A hard landing in China and a domestic housing market downturn were nominated

5

Mining lobby flogs company tax cut dead horse

Minerals Council of Australia (MCA) chair Helen Coonan has called for an overhaul of the corporate tax system as part of the nation’s coronavirus recovery process. She notes that Australia’s company tax rate is 3% higher than the OECD average and the second-highest among developed nations. Coonan contends that tax reform will encourage investment and

42

Small businesses shun JobKeeper over cash flow concerns

Another day, another report of JobKeeper creating liquidity problems for small businesses, who are unable to pay their staff the allowance while they await reimbursement from the ATO: While over 900,000 businesses have expressed interest in the JobKeeper scheme since it was announced in late March, just over 400,000 businesses have submitted their applications, covering

4

Bailing out Virgin would have burned taxpayers

Earlier this month, Virgin Australia and Labor requested that Australian taxpayers provide an emergency $1.4 billion loan to Virgin to ensure that it could remain operational. This request was rebuffed by the Morrison Government and consequently Virgin went into administration last week. Today it has been revealed that Virgin owes 10,000 creditors a combined $6.8