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 Leith van Onselen Earlier this week, I provided a back-of-the-envelope estimate of the astronomical cost associated with Labor’s reckless uncapped plan to allow migrants to bring two elderly parents into Australia for a continuous period of up to ten years. In a nutshell, I argued that since there were already more than 7.3 million overseas-born
By Leith van Onselen Last year, Labor leader Bill Shorten gave a speech to the Press Club claiming Australia’s private health insurance industry is “treating Australians like mugs” and “gouging people on the basis of a con”. Shorten also pledged to cap health insurance premium increases at 2% per annum for the next few years.
By Leith van Onselen The original 2011 Gonski report was designed to clean up Australia’s opaque and convoluted system of school funding, as well as establish a new needs-based funding model. This was to be achieved by introducing a “base rate” level of funding per student, known as the Schooling Resource Standard (SRS), with extra
By Leith van Onselen The Australian Population Research Institute’s Dr Bob Birrell and Melbourne University’s Professor Peter McDonald, who are typically at opposing ends of the immigration debate, have united to slam Labor’s reckless uncapped visa for parents of existing migrants. From The Australian: [Labor’s] policy has united in alarm two leading demographers normally at
Earlier this month, Ross Gittins derided Australia’s university system as “de-facto privatisation” gone wrong, whereby “governments of both persuasions had gone for years trying to get the universities off the budget books”, thereby giving universities “unrestricted power to charge overseas students”. As a result, vice chancellors have become “as money-obsessed as any company chief executive… slashing
By Leith van Onselen For years MB has explained many times why it does not support the proposed $120 billion High Speed Rail (HSR) line linking the major eastern cities of Brisbane, Sydney, Canberra and Melbourne, due to: The exorbitant cost associated with building and operating the rail line; Lack of population density to support
By Leith van Onselen In the wake of Labor leader Bill Shorten over the weekend committing $10 billion of taxpayers money towards Dan Andrews’ $50 billion suburban rail loop: More experts have emerged attacking the project as a “white elephant”. From The Age: Professor John Stanley was one of the authors of Plan Melbourne, the Victorian
Another poor effort from Alan Kohler: American GDP growth accelerated to 3.2 per cent in the March quarter. We won’t get Australia’s figure for that quarter for a few weeks, but on Friday the RBA downgraded its forecast for Australia’s growth in 2019 to 1.7 per cent. …President Donald Trump signed into the law the
By Leith van Onselen Melbourne University demography professor, Peter McDonald, delivered another stark warning yesterday that Labor’s crazy policy to allow migrant Australians to bring their parents to Australia will lead to 2 million elderly migrants drowning the nation in blue rinse, straining public services and infrastructure, and rapidly age the population. From The Australian:
Via the excellent Damien Boey at Credit Suisse: Ahead of the Federal election, policy makers are showing their hand on stimulus prospects. On Friday, the RBA revealed in its Statement on Monetary Policy (SoMP) that 2 rate cuts factored into market pricing, will only be sufficient to get real GDP growth to 2.75% by the end of
By Leith van Onselen The New South Wales Treasury’s analysis indicates that the state would receive an additional 37,000 aged migrants under Labor’s family visa program, putting pressure on its hospitals. From The Australian: Hospitals in Australia’s biggest destination for migrants could be swamped as more than 37,000 aged parents arrive from overseas under Bill
By Leith van Onselen The final weekend of the election campaign saw both major parties rain infrastructure promises down on the electorate. Yesterday, Bill Shorten announced that if elected, Labor would contribute $10 billion towards Dan Andrew’s $50 billion suburban rail loop: Here’s the announcement via The Canberra Times: The opposition will splash $10 billion
By Leith van Onselen In the wake of Dr Bob Birrell’s startling report on Labor’s proposed uncapped visa for parents of existing migrants, it is worth considering what the long-term costs could be to Australian taxpayers and whether Labor’s policy is affordable. Before considering these issues, below is Labor’s policy as per its website: The
By Leith van Onselen ABC’s Fact Check has released a positive assessment of Bill Shorten’s claim that, over a decade, $77 billion of the Coalition’s tax package would go to people earning more than $180,000 a year, which came from figures provided by The Australia Institute: Prime Minister Scott Morrison countered that he did not
Here they are: Given the basis of them is the dodgy PEFO take ’em with a grain of salt. Surplus schmurplus. Full report.
By Leith van Onselen For years, Labor’s infrastructure spokesman, Anthony Albanese, has pushed hard for a High Speed Rail (HSR) line linking the east coast capitals. Now he appears to be getting his wish, with Labor officially pledging $1b towards the project: Labor has promised to spend $1 billion buying land between Melbourne, Canberra, Sydney and
Via ABC: Labor will release its policy costings today, which are expected to outline $154 billion in savings to the budget over a decade, due to its contentious tax changes. The Opposition’s plans to curb negative gearing, capital gains tax concessions and dividend imputation have been a central battle in the federal election campaign. Labor
By Leith van Onselen In an audacious move, Liberal State Governments have banded together to demand compensation from a future Labor Government from any loss in revenues arising from its negative gearing and capital gains tax (CGT) reform. From The Australian: The letter — signed by NSW Treasurer Dominic Perrottet, Tasmanian Treasurer Peter Gutwein and
Below is an edited extract of a new paper by Dr Bob Birrell from the Australian Population Research Institute. Summary An alarmist headline? Not really. This judgement follows from an analysis of Labor’s proposed temporary visa for parents of existing migrants, entitled, a ‘Fairer Long stay parent visa for Australia’s migrant and multicultural communities’. The
By Leith van Onselen Discretionary trusts are a well known tax avoidance tool and have long been in the sights of both sides of politics. As treasurer in the Fraser Government, John Howard legislated for distributions from trusts to children under the age of 18 to be taxed on a non-concessionary basis. In 2000, the
By Leith van Onselen The AFR has attacked “fake news” pertaining to Labor’s franking credit reforms by producing its own fake news claiming that Labor’s policy will “hurt the most vulnerable”: Could there be a clearer example of fake news: repeating that tax wasn’t paid when clearly it was? This proposal amounts to the opposite
Martin North with Steven Hail from the University of Adelaide on MMT:
By Leith van Onselen Labor has released new costings showing that its $3,000 cap on deductions for tax advice would raise $375 million over the next three years and $1.6 billion over the next decade, while also showing that its policy would primarily impact high income earners. From The Age: Australian Taxation Office (ATO) data
By Leith van Onselen A new study on the National Broadband Network (NBN) by the University of Sydney and Arizona State University has found that around half of all homes in Sydney, Melbourne and Brisbane have been connected to inferior NBN technology: The data suggests around half (40-60%) of homes in the three cities only
By Leith van Onselen Victoria University’s Centre of Policy Studies (CoPS) has released a new report, entitled The Economic Impact and Efficiency of State and Federal Taxes in Australia, which analyses deadweight losses and macroeconomic consequences of state and federal taxes, and challenges traditional orthodoxy regarding company taxes: In total, we calculate excess burdens for
It’s too late! Josh Recessionberg has already put Australia into per capita recession: But he says he can handle it, at the AFR: A large component of the government’s pro-growth strategy rested on the passage of the $158 billion in extra income tax cuts announced in the April 2 budget and which the Coalition, should
By Leith van Onselen On last night’s Q&A program, Labor leader Bill Shorten vowed that Labor would lift Newstart if elected, but said he would wait until a review is completed before deciding by how much. From The AFR: Responding to a question from an unemployed 61-year old woman who is struggling, Mr Shorten rejected
By Leith van Onselen In an astonishing act of fiscal vandalism, the Australian Greens have pledged to make it faster and easier for migrants to reunite with their parents in Australia, vowing to clear the 97,000 strong backlog of migrant elderly parents seeking permanent residency in Australia. From SBS News: The party wants to cap
By Leith van Onselen Speaking at the treasurers’ debate yesterday, Treasurer Josh Frydenberg confirmed the Coalition has no plans to change company tax rates for medium and large companies if it wins the election. Given Labor has already made it known that it is strongly opposed to any company tax cuts, this suggests the policy
By Leith van Onselen MB has argued repeatedly in favour of legalising marijuana on the following grounds: It would bring marijuana into line with alcohol and tobacco, which are both legal and regulated despite being more dangerous to health; It would guarantee purity of supply; It would reduce profits to organised crime; and It would provide
