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.


The secret behind the NSW Government’s Budget success

By Leith van Onselen NSW Treasurer, Dominic Perrottet, is out this morning spruiking the Government’s economic and Budget success. From The AFR: At the mid-year economic update in Sydney, Mr Perrottet unveiled a $600 million increase to the expected surplus for this financial year, rising from $2.7 billion to $3.3 billion. He said state budget


Expect rising Budget deficits over next decade

By Leith van Onselen Stephen Anthony, chief economist at Industry Super Australia, has penned an article in The AFR today explaining why the Turnbull Government’s planned return to surplus is deluded and we should expect rising Budget deficits over the next decade: Recall that if the 2017-18 budget outlook was “adjusted” slightly to reflect the evident


Coalition puts university funding cuts back on agenda

By Leith van Onselen After its previous university funding reforms were blocked in the Senate, the Turnbull Government is considering alternative funding cuts that can be implemented without legislation as part of its Mid-Year Economic & Fiscal Outlook (MYEFO). From The AFR: The Australian Financial Review understands the Mid-Year Economic and Fiscal Outlook (MYEFO) will


Australia needs more TAFE not more unis

By Leith van Onselen The Mitchell Institute’s 2017 report has been released, which shows that while funding to universities has skyrocketed over the past decade in real terms, funding for vocational education and training (VET) has plummeted to a decade low. From The Conversation: The chart below shows the trends in expenditure over an 11-year


Ponzi Pallas’ West Gate Tunnel to cost $1 billion more

By Leith van Onselen I have argued repeatedly that one of the key reasons why Australia’s high population growth (immigration) is lowering the living standards of existing residents is because of the strain that it places on infrastructure, which inevitably leads to more congestion on roads, public transport, as well as more expensive housing. Basic


There’s merit in giving states greater taxing powers

By Leith van Onselen The Institute of Public Affairs (IPA) has proposed adopting a system of “competitive federalism”, whereby the states would be responsible for setting their own GST rate and retaining the revenue. IPA executive director John Roskam suggests that the states and territories could also be allowed to impose their own income taxes.


Master of tax cuts warns on tax cuts

Shameless is as shameless does: Former Treasurer Peter Costello has warned the Turnbull government not to do anything in the upcoming financial statement or budget that would endanger a return to surplus. In a forward to a Centre for Independent Studies report on budget policy to be released on Monday Mr Costello says since he


The great corporate tax dodge

By Leith van Onselen Late last week, the Australian Taxation Office (ATO) dumped data on corporate tax paid in the 2015-16 year, which revealed that more than 700 large companies paid absolutely nothing, despite earning a combined income of $500 billion.  ABC News explains the dataset: There are some things we need to tell you


Why the projected return to Budget surplus is deluded

By Leith van Onselen Treasurer Scott Morrison has downplayed modelling by the Parliamentary Budget Office (PBO), which suggests that productivity will need to increase in order to ensure that a Budget surplus is sustained. The Federal Government has forecast that it will post surpluses equivalent to 0.3 per cent of GDP from 2020-21, although this


ATO targets negative gearing tax dodgers

By Leith van Onselen Back in May, the Australian Taxation Office (ATO) noted that property investors were rorting the tax system by claiming excessive depreciation expenses on plant and equipment: “The ATO has actively monitored this area over many years. During this time we have identified a number of issues relating to inflated valuations of


ATO targets dodgy work-related deductions

By Leith van Onselen Over the past year, the Australian Taxation Office (ATO) has commenced crackdowns against multinational tax avoidance, negative gearing deductions, and dodgy workplace uniform deductions. Now, the ATO will crack down on unscrupulous tax agents who assist wage earners to make fraudulent work-related tax deductions, with teachers, nurses and police officers in


NSW Liberals revolt against $2 billion stadium pork

By Leith van Onselen I noted a fortnight ago how the NSW State Government appeared to have 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 perfectly fit-for-purpose and underutilised. Now, state MPs have revolted against the decision, labeling


The BCA’s company tax scaremongering doesn’t add up

By Leith van Onselen Following passage of the Trump Administration’s tax package, the Business Council of Australia (BCA) and the Australian Chamber of Commerce and Industry (ACCI) have been quick to demand that Australia drop its corporate tax rate or place Australian investment and jobs at risk. From The Australian: Australian businesses yesterday called for


Mass immigration driving mass tax avoidance?

By Leith van Onselen The Australian Taxation Office (ATO) is currently targeting areas of the nation that have a lot of cash-only businesses, with businesses being investigated including restaurants, hairdressers and beauty parlours. According to the ATO, the areas in question often have high immigrant numbers. From The Australian: The area-by-area blitz — which includes


Here come the tax cuts

Via the AFR: Malcolm Turnbull intends to announce a new round of personal tax cuts before the next election, but when they will start depends on when they can be paid for. Either way, the low- and middle-income earners who are in line for the next round of tax relief should know the details before


ATO blitz on multinationals reaps $5 billion

By Leith van Onselen Last year, the Australian Taxation Office (ATO) announced that it would target multinational tax avoidance, which was believed to be costing Australian taxpayers billions in lost tax revenue. In May, the ATO issued new guidelines governing loans made by multinationals to their local units in the wake of the Chevron tax


Degree quantitative easing drives spike in uni dropouts

By Leith van Onselen Last year, The Australian revealed that drop-out rates for first year university students had hit an all-time high one-in-five, with the Grattan Institute’s higher education policy expert, Andrew ­Norton, claiming there was a correlation between drop-out rates and increasing enrolments, particularly among low-Australian Tertiary Admission Rank (ATAR) students. Then in June,


The threshold issue in the company tax debate

By Leith van Onselen The Australian’s David Uren has published an interesting report examining the latest OECD data on tax collections, which shows that the share of taxes raised from companies has been in decline since the Global Financial Crisis, but still remains high by developed country standards: The OECD’s annual review of revenue collection


Will Hail Mary tax cuts trigger rate hikes?

Jacob Greber thinks so: For much of the past decade – and Friday marks exactly 10 years since the election of Kevin Rudd – economic leadership has been heavily underwritten by the Reserve Bank of Australia. …Throughout this clown show the Reserve Bank has steadily managed a remarkable post-boom landing for the economy. Often on its


Hewson: Tax reform can save Turnbull

From John Hewson today: There are several clear imperatives for tax reform, including the unsustainability of bracket creep and the corporate tax base; the need for global competitiveness of effective tax rates; the need to limit the capacity of multinationals to shift profits and minimise their tax; the need to broaden the tax base, including the coverage


Will Melbourne Airport’s privatisation sabotage rail link?

By Leith van Onselen Victorian Premier Daniel Andrews is expected to tell a meeting of the Victorian Chamber of Commerce today that construction of a rail link to Melbourne Airport will begin by 2026. The announcement of the rail link follows yesterday’s meeting between transport ministers from the Victorian and federal governments, whereby the two


RBA boffin clears air of company tax cut brain fart

From former RBA deputy governor Stephen Grenville at Lowy: Australia’s Treasurer Scott Morrison used a recent speech to support the current round of company tax reductions, aimed at improving the incentives for foreigners to invest in Australia. He argued the case is made more pressing by US proposals to reduce its company tax. Yet Morrison greatly


Reality hits company tax debate

By Leith van Onselen From the get-go, MB has opposed the Turnbull Governments proposed reduction in the company tax rate from 30% to 25% on the following grounds: Foreign businesses and shareholders would gain the lion’s share of the benefits due to Australia’s dividend imputation system; The Budget would lose $8.2 billion a year, according


Private health insurance ‘death spiral’ raises tricky questions

By Leith van Onselen I have previously claimed that Australia’s private health insurance system is facing forces similar to the electricity “death spiral”, which arises when demand for power declines, due in part to customers taking up solar, leading to higher prices to cover fixed network costs. That is, the more people that take-up solar