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.


Immigration ponzi sends NSW Government broke

The Committee for Sydney has called on the NSW Government to provide more transport networks. Committee CEO, Gabriel Metcalf, believes Sydney has grown to the point that it needs a mass transport system like London’s, but that the Government does not have the money required to fund more infrastructure projects. It suggests the Government should


NBN farce extends and pretends

A week after it was revealed that Australians pay the highest broadband costs in the OECD and ranks 67 out of a wider list of 83 countries: Embattled NBNco has admitted that it is running way behind schedule in connecting homes to the NBN network: Half a million homes will have to wait longer to connect


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NDIS rorted and defrauded

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Pretend infrastructure boom booms!

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Drowning Recessionberg grabs Labor policy life saver

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Recessionberg: I am an idiot

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Australia should consider an inheritance tax

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“Generational bargain is at breaking point”

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Grattan: War on youth intensifying

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Why the public sector wage push is misguided

Last month we witnessed Labor’s shadow financial services minister, Stephen Jones, demanding the federal government stimulate the economy and wage growth by lifting public sector salaries: Mr Jones said Australians needed a pay rise and the government should “lead by example” by boosting the wages of federal workers. “The government has got a role to


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Transurban’s “meta-monopoly” turns taxpayers into roadkill

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