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.


MOAR DoleHider easy!

Via AFR: The cost of the JobKeeper wage subsidy will increase by more than $15 billion due to the hammer blow to business caused by the Victorian coronavirus crisis. The $15.6 billion JobKeeper blowout, which will take the total cost of the scheme to $102.2 billion this financial year, is due to two factors. First,


Time for the Green New Deal

Classical economics would prescribe decades of austerity to pay off the levels of government spending seen in the COVID-19 pandemic. But there’s another way, says modern monetary theorist, Dr Steven Hail, Research Scholar at the Global Institute for Sustainable Prosperity and Economics Lecturer at Australia’s University of Adelaide. Via Struggles from Below: A recent New


Coalition pursues wrong kind of housing stimulus

Housing Minister Michael Sukkar told a conference that housing policy will be a key component of the federal government’s 2020 Budget on 6 October. Amongst other things, extending the First Home Loan Deposit Scheme and changes to the National Housing Infrastructure Facility are believed to be under consideration. However, Sukkar has reportedly ruled out funding


An investor’s guide to good government stimulus

We are in a strange political environment. Globally there have been trillions of dollars of government stimulus announced, deficit hawks have turned chicken, and formerly staunch opponents of government intervention have been leading the charge. How should investors assess each government stimulus announcement? One day the Australian government told us they had the right level


Irrelevant S&P dumps Victoria on downgrade watch

Who cares. Deficits are irrelevant… Overview • On Aug. 3, 2020, the State of Victoria declared a “state of disaster” in response to rising cases of COVID-19, triggering additional lockdown measures that we expect to severely hit economic activity. • There is an increasing possibility that we will lower our long-term rating on Victoria within


Labor takes aim at Coalition’s “monumental” $90b submarines failure

Labor defence spokesman Richard Marles has accused the Morrison government of mismanaging the $90 billion future submarine program, claiming its mismanagement has compromised Australia’s national security. In particular, Marles accuses the government of being “negligently premature” by choosing France’s Naval Group ahead of rivals before designs for the submarines had even been finalised: Mr Marles


Exclusive Gerard Minack: MMT the new normal. Get over it

Special report from Gerard Minack: Monetising deficits has started.  Expect it to stay. The helicopters have arrived.  Central banks are printing money to fund expanding government deficits.  I expect them to stay: fiscal will remain the lead instrument for cycle management through the coming expansion, and it will be backstopped by central banks.  Deployed with


Why cutting company taxes makes even less sense now

Victoria University’s Janine Dixon and Jason Nassios have made the compelling case that cutting company taxes in the current environment is bad policy. Specifically, it would provide a windfall gain to foreign investors who have already invested in Australia at the current company tax rate. Hence it would shift a significant fiscal burden onto Australian


He’s got to go. How Dan Andrews infected Victoria

The Andrews Government’s COVID-19 failures continue to mount. In addition to botching hotel quarantine, thus enabling COVID-19 to be imported into the community, the Andrews Government also starved the public health unit of funding, leaving it critically short of contract tracers: Victorian Chief Health Officer Brett Sutton’s team was so poorly funded that top bureaucrats


Private health insurance spirals towards collapse

New data from the Australian Prudential Regulatory Authority (APRA) reveals that the number of Aussies taking out private health insurance has crashed to its lowest level since 2006. According to APRA, private health hospital coverage of adults fell from 44.7% in 2018 to 44% last year, with losses experienced across all jurisdictions: More worryingly, coverage


Scummo muzzles Reaganberg

As he should. The guy is a bloody idiot. A couple of pieces today by David Crowe suggest that Scummo may realize it: Policies to create jobs will take priority over calls for faster tax cuts in the next phase of the Morrison government’s economic stimulus amid a political fight over the cost of bringing


Forget Thatcher and Reagan. The economic plan is to kill people

Lots of demands for sensible reform on the weekend, triggered by an absurd Depressionberg. Via the AFR: “I notice in the Financial Review today, not everyone is a Keynesian and thinking about income support. It is important to go to the supply side. Thatcher, Reagan, that’s an inspiration,” Frydenberg told reporters on Friday’Reform like we’ve


Private schools brace for mass exodus

An expected casualty of the COVID-19 economic meltdown are Australia’s private schools, which are bracing for an exodus as financially strapped households tighten their purse strings: State school principals are expecting an increase in student numbers as financially stretched families turn away from private schools… Some private schools have already offered fee cuts and deferrals,


S&P warns on AAA again

Via S&P: MELBOURNE (S&P Global Ratings) July 23, 2020–S&P Global Ratings today said the treasurer’s economic and fiscal update released this morning is consistent with the ‘AAA’ rating and negative outlook on Australia (see “Australia Outlook Revised To Negative As COVID-19 Outbreak Weakens Fiscal Outcomes; ‘AAA/A-1+’ Ratings Affirmed,” published April 8, 2020). The extension and refinement of the government’s


Rating agencies warn on public sector pay rises

Earlier this week, Victoria’s public sector union reached agreement with the Andrews State Government regarding a pay rise for public servants. A 2% pay rise was awarded, along with a mobility clause and 16 weeks’ parental leave for primary and secondary carers, which effectively increased the pay rise to more than 3%: Treasurer Tim Pallas


Depressionberg announces his depression

Not much to report in the Budget update. Basically, because the deficits don’t matter anyway and the economic forecasts are worthless as the second wave wreaks havoc. Noteworthy is two consecutive years of falling growth. A depression in other words: Interestingly, Depressionberg has destroyed the ABS’s jobs numberwang: We prefer the Roy Morgan definition which


Negative gearing losses surge

The ATO’s Taxation Statistics for 2017-18 have been released, which shows that the number of negatively geared property investors rose by 200,000 over FY18, with total losses ballooning by $800 million to $13.1 billion: The average loss per negatively geared investors was $9,924 in FY18, up from $9,461 in FY17. The below table also shows


Coalition readies for massive NBN write down

In March, the Parliamentary Budget Office reported that the “fair value” (or saleable value) of the National Broadband Network (NBN) was only $8.7 billion – less than one-third the federal government’s equity investment. This suggested the NBN required a $21 billion write down. Now, the Morrison Government has put the NBN’s valuation under review, suggesting