Via Deloitte: Deloitte Access Economics: Budget outlook brightens 14 December 2020: On budget night just over two months ago there was a risk that the government hadn’t done enough. Treasury was forecasting an Australian economy that would permanently be around 5% smaller than its pre-COVID forecasts, and yet policy was shifting away from income supports
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 Gareth Aird, head of Australian economics at CBA: Key Points: The 2020/21 Mid-Year Economic and Fiscal Outlook (MYEFO) is scheduled fornext week(date to be confirmed). The MYEFOshould show an improved Budget bottom line. Our point estimate for the revised underlying cash deficit in 2020/21 is $A204bn (10.2% of GDP) Overview The landmark 2020/21 Budget
After the global financial crisis of 2008 the Australian government responded with a large fiscal stimulus. Initially worth about $10 billion, it soon grew by $42 billion by February 2009. Out of this total about $21 billion came in the form of direct cash payments to households. At the same time the RBA reduced the cash rate,
Some economists argue that government spending on social housing is the best way to help the economy bounce back from the pandemic while also easing a shortage of affordable housing. The latest Victorian Budget announced a record $5.3 billion spend in the sector, whereas the NSW Government earmarked $812 million in its state budget. But
A Labor-controlled Senate inquiry on COVID-19 has recommended permanently raising the rate of JobSeeker (sub titles added for clarity): Interim Finding; The rate of JobSeeker is inadequate at $40 per day. The committee is concerned that the Australian Government is withdrawing fiscal support too early in the recovery phase by reducing the Coronavirus Supplement at
Adam Creighton has called for wealthy retirees to access their immense home equity if they want more money in retirement: On average, retirees aged over 75 have just under $1m in equity in their homes plus other financial assets, according to the Grattan Institute, dwarfing their $127,000 still in super. Why shouldn’t “eating your house”,
S&P Global Ratings has downgraded both Victoria’s and NSW’s credit ratings due to the weaker fiscal outlooks: S&P Global Ratings slashed Victoria’s credit rating by a more severe double notch to AA and lowered NSW to AA+, marking the first time since 2003 that either state has missed out on the top-tier AAA rating held
Last month, CBA released analysis derived from internal data showing that average household disposable incomes have grown strongly despite weak wage and salary growth, courtesy of enormous emergency income support and early superannuation release: Annual growth in wages and salaries paid into CBA bank accounts has accelerated over the past month (latest w/e 20 November).
Yesterday I turned bullish on the Australian economy following detailed analysis of the Q3 national accounts, declaring that the economy is “poised for a V-shaped recovery”. New research from CBA senior economist Kristina Clifton has cemented this view, calculating that public capex from all state and federal budgets will be up 37% this fiscal year
Last week’s national accounts revealed why it has been a wonderful recession for Australia’s companies. While aggregate employee compensation rose by a mere 1.5% in the year to September 2020, company profits boomed by 14.4%: In fact, over the four years from September 2016, aggregate employee compensation rose by only 16% versus a whopping 58%
The world moves in mysterious ways. Here we are amid a global pandemic and extraordinary China divorce and what do we get? Mining Boom 3.0. A few weeks ago Variant Perception put out a note declaring another commodities supercycle imminent. Let’s reprise: A new dawn for commodities Executive Summary • We are on the cusp
After my piece yesterday, Gerard kindly sent through this analysis for readers: Unprecedented peace-time budget deficits are pushing public sector debt to post-war record levels. Welcome to the newest normal. With fiscal taking over cycle management deficits are here to stay. This won’t worry me. Yields should remain low in a world of excess private
The Australian is simply out of date: State government debt will more than double to nearly $500bn within four years, exceeding the peak level of borrowing as a share of GDP reached in the early 1990s recession and leaving states exposed to credit rating downgrades. Borrowing by the six state governments, including their state-owned corporations,
Via AFR: The JobKeeper wage subsidy is being paid to 700,000 fewer people than forecast in the October 6 budget, which the federal government says shows the economy is recovering faster than anticipated. The latest Australian Tax Office data released by Treasurer Josh Frydenberg shows the number of JobKeeper recipients fell from 3.6 million employees
NSW stamp duty receipts continue to recover strongly from their COVID-19 funk. Annual stamp duty receipts rose for six consecutive months to October and have now risen 3.6% above the previous April peak: It’s a similar story for property transfers, which have also risen for six consecutive months and are 3.5% above their April peak:
Matthias Coramnn’s job application to run the OECD is not going well. I’ve noted many reasons why it is so inappropriate: Mathias is the Morrison Government’s most radical supply-sider. He actually believes in trickle-down economics, which leaves the room short of oxygen given Cormann is obviously intelligent. Mathias has a record of deep climate skepticism
Like me, Inside Story’s Tim Colebatch is an overall fan of the Andrews Government’s Victorian State Budget, which provides massive stimulus at exactly the right time: The main game of the Andrews government’s 2020–21 budget is to deliver stimulus, and it does so in spades. It plans to spend almost $110 billion this year providing
To date, the Morrison Government has refused to permanently lift Australia’s JobSeeker unemployment subsidy from its poverty level of $40 a day because it claims that doing so would act as a disincentive for people to look for work. This view has been informed by spurious claims from employers that businesses are having a difficult
The Treasury’s 600-page Retirement Income Review took direct aim at pensioners’ houses, questioning why housing was excluded from the assets test to qualify for the aged pension: The Pension Loans Scheme is an effective option for accessing equity in the home for both age pensioners and self-funded retirees. The current exemption of the principal residence
The Victorian Government yesterday released its 2020-21 State Budget, which will see the Government embark on a massive stimulus program in a bid to support 200,000 jobs within 18 months and 400,000 by 2025. Below are key extracts from Treasurer Tim Pallas’ speech combined with key figures from the Budget Papers: With Victoria’s gross state
I’ve noted plenty already: Mathias is the Morrison Government’s most radical supply-side nutter. He is not corrupt which might make this position forgivable. He actually believes in trickle-down economics, which leaves the room short of oxygen given Cormann is obviously intelligent. Mathias has a record of deep climate skepticism having voted in favour of climate
The RBA has released new analysis on the JobKeeper scheme’s impact on unemployment, which found that JobKeeper reduced Australian’s unemployment by 700,000 over the first four months of the COVID-19 pandemic: We find that one in five employees who received JobKeeper (and, thus, remained employed) would not have remained employed during this period had it
The next time you hear a seniors’ group demand an increase in the aged pension and other subsidies, consider the latest Melbourne Institute’s Household, Income and Labour Dynamics in Australia (HILDA) report, which was released last week. This report showed that Australians aged 65-plus enjoyed by far the biggest increase in wealth between 2002 and
Two years ago, the AirRail Melbourne consortium – which includes the owner of Southern Cross Station and part owner of Melbourne Airport, IFM Investors – offered to contribute $5 billion (on top of the state and federal government’s $10 billion) to own and operate the Airport Rail Link tunnel, with the service slated to “deliver a
The Depressionberg Unstimulus has already triggered an employment catastrophe in the largest segment of the economy, small and medium enterprise: Things have been going better for the big end of town because it is enjoying major advantages over smaller competitors in its dominant online position, access to capital markets and more capital intensive growth models.
The Victorian Government has followed the example of the South Australia Government and announced the imposition of an electric vehicle (EV) road tax from July next year. The tax, which was announced by Treasurer Tim Pallas over the weekend, will impose the tax of 2.5c a kilometre for full EVs, and 2 cents a kilometre
NSW Treasurer Dominic Perrottet’s plan to phase out stamp duty on property transactions and replace it with a land tax has won broad support, including from Mirvac CEO Susan Lloyd-Hurwitz. Lloyd-Hurwitz says stamp duty is a “very poor tax” that lessens mobility and keeps people in the wrong type of housing “for too long”. Lloyd-Hurwitz
The Australian taxpayer is businesses’ best friend. We have already witnessed company profits soar during the pandemic courtesy of JobKeeper, while workers’ wages and salaries tanked: Senior executives of Australia’s largest companies also secured massive bonuses after claiming JobKeeper subsidies: The Morrison Government’s JobMaker program will keep the largesse flowing by subsidising the wages of businesses
Telstra has embarked on a major restructuring as it gears up to purchase the National Broadband Network (NBN) from the Australian Government: The restructure involves creating three separate legal entities under a Telstra Group umbrella, which Mr Penn and Telstra chief financial officer Vicki Brady said could theoretically be spun off as separately listed companies,
Via the excellent George Tharenou at UBS: NSW Budget deficit a record $36.5bn or 5.8% of GSP in 20/21, & 4.1% in 21/22 Reflecting the impact of COVID, the NSW State Budget total Non-Financial Public Sector (NFPS) fiscal balance has deteriorated very sharply, since the last update in the HYR. The cumulative deficits over the