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.


Coalition’s youth slave labour scheme fails

By Leith van Onselen Last year, several labour market experts raised concerns about the proliferation of unpaid internships, which risked becoming a black market for slave labour. Despite these warnings, the former Turnbull Government controversially announced that it would expand its $750 million Youth-Jobs PaTH program – to prepare, trial and ultimately hire young Australians


Slashed MYEFO still deluded

2018/19 MYEFO is out and remains deluded. Budget commodity revenues have been so strong that they more than offset poor local forecasting to lift the surplus outlook: But upgraded surpluses rely entirely on the continuation of the same: China and commodity prices are going to boom forever, apparently. Thermal coal and iron ore and both


Labor goes back to the future on improved NRAS

By Leith van Onselen History doesn’t repeat but it sure does rhyme. At Labor’s weekend conference, leader Bill Shorten announced a $6.6 billion package to facilitate 250,000 ‘affordable’ rental dwellings over the next decade. From The ABC: Under the 10-year, $6.6-billion scheme, investors who build new properties would get a subsidy of $8,500 a year,


Coalition enjoys fictitious surplus boom

Via The Australian: An unexpected budget bonanza has doubled the projected sur­pluses over the next four years to more than $30 billion in a dramatic improvement to the bottom line in what the Coalition will today claim is the best set of numbers since the final year of the Howard-Costello government. The Australian understands that


NSW births another light rail white elephant

By Leith van Onselen In the wake of the massive cost blow-outs and delays hitting both the Parramatta Light Rail Project and the Eastern Suburbs Light Rail Project, the NSW Auditor-General has lambasted the 2.7 kilometre light rail line in Newcastle, whose cost blew-out by 44% to $368 million and was built with a “not convincing” business


Inside MYEFO

Via Westpac: • The Treasurer will release the Federal Government’s MidYear Economic & Fiscal Outlook (MYEFO) on Monday of next week, December 17. • The update will reveal an improved budget position – largely higher tax revenue – on stronger national income growth, a robust labour market and, to date, an undershoot on expenditures. •


Scummo: Forget unemployed, give oldies even more money

By Leith van Onselen In recent times, a veritable conga-line of groups, representing a huge cross-section of society, have called for the federal government to lift Australia’s pathetically low Newstart Allowance for the unemployed (aka ‘Dole’), including: Deloitte Access Economics senior partner Chris Richardson; the Business Council of Australia; Former Treasury Secretary, Ken Henry; Professor


Victorian Premier turns infrastructure gun on ScoMo

By Leith van Onselen The vertical fiscal imbalances plaguing the federation has reared its ugly head again, with Victorian Premier, Daniel Andrews, writing to Prime Minister Scott Morrison demanding billions of dollars in funding from the federal government to cope with unrelenting immigration-driven population growth. From The SMH: In a letter to Prime Minister Scott


Shorten again endorses negative gearing reform

Via the AFR: As Sydney and Melbourne house prices continue to fall, Mr Shorten signalled that an originally planned July 1, 2019 start date could be deferred until 2020. He said Labor remained committed to its three-year policy of reforming negative gearing to make the system fairer for first-home buyers against investors who now receive


Albo goes all in high-speed ponzi rail

By Leith van Onselen I smell an election in the air with Labor’s infrastructure spokesman, Anthony Albanese, going all in for a High Speed Rail (HSR) line linking the east coast capitals. The below tweets tell the story: High Speed Rail is a game changer. 🚄 The Morrison Government would be serving the public interest


Gladys launches $100b ponzi rail Hail Mary

By Leith van Onselen More details have emerged about the NSW Government’s proposed four routes for high speed rail (HSR) into Sydney: A high speed rail project Premier Gladys Berejiklian has committed to start work on if she wins the state election could cost $100 billion… “A reasonable figure would be $100 billion in Australian dollars


The extraordinary fiscal cost of compulsory super

By Leith van Onselen The Australian’s Adam Creighton has penned an enlightening article on the extraordinary cost of Australia’s superannuation system, which is running at around quadruple that of the Aged Pension, according to analysis provided by the peak superannuation industry, Association of Superannuation Funds Australia (ASFA): Age Pension outlays, which totalled $46.8 billion this year,


Federal government is a key player in the ‘gig’ economy

By Leith van Onselen John Wilson – the managing legal director of BAL Lawyers and an accredited specialist in industrial relations and employment law – has penned an interesting article in Fairfax on the increasing spending on contractors by federal governments and agencies over recent years, which has come as the Australian Public Service (APS) has


Why high speed rail is unviable

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


EY lobbies against new digital tax

By Leith van Onselen Last year, the federal government implemented a Diverted Profits Tax (DPT), affectionately dubbed the “Google Tax”, which armed the Australian Taxation Office (ATO) with stronger powers to fight multinational tax avoidance. The DPT was budgeted to raise around $100 million in revenue a year from 2018-19. Recently, news emerged that the


Parliament passes visa legislation to accelerate ageing

By Leith van Onselen The Productivity Commission’s (PC) Migrant Intake Australia report, released in 2016, recommended significantly tightening parental visas and raising their price, given they are costing taxpayers an estimated $335 000 to $410 000 per adult, or between $2.6 and $3.2 billion per annual intake in present value terms (and growing): There is


Generational war declared on Labor’s franking credit reform

By Leith van Onselen Generational war has broken out of Labor’s policy to limit the refunding of excess franking credits. Australia’s leading mouthpiece for the ‘grey gouge’, Robert Gottliebsen, has summoned faux rage, declaring the policy unfair: This is a tax on battlers… And the fundamental issue is that a huge section of the non-government pensioner


Desperate Scummo to accelerate personal tax cuts

By Leith van Onselen There’s more indications today that the Morrison Government will seek to spend Australia’s temporary Budget windfall from higher than expected commodity prices on bringing forward $10 billion of ‘stage-2’ personal income tax cuts – currently scheduled to come into effect from 2022. From The Canberra Times: The tax cuts, worth up


Gotti incites faux grey outrage against Labor’s franking reforms

By Leith van Onselen Australia’s leading mouthpiece for the ‘grey gouge’, Robert Gottliebsen, has summoned faux rage over Labor’s policy to limit the refunding of excess franking credits: Bill Shorten has declared that if he is elected those cash franking credits will no longer be paid. Individuals may strongly disagree with what is effectively a


NSW Labor rejects $2b footy stadiums pork

By Leith van Onselen I’ve noted previously how the NSW State Government has hit ‘peak stupid’ in deciding to spend $2 billion to demolish and rebuild the Olympic Stadium and the Sydney Football Stadium, both of which are underutilised and whose redevelopment would deliver zero net economic benefits for the state, according to analysis by hired gun