By Leith van Onselen The extent of the NSW Government’s asset sales has been laid bare in a budget estimates hearing. From The ABC [My emphasis]: The New South Wales Government has sold off more than 20,000 properties including schools and public housing dwellings since it came into office in 2011, raking in more than
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.
Via the ABC: The iron ore price spike in recent months has delivered little for state coffers, with the Government set to reveal a $1.7 billion royalty revenue hit over the forward estimates when it hands down its first budget next week. A range of factors, including lower exports and the high Australian dollar, have
By Leith van Onselen The Turnbull Government is optimistic that its proposed 0.5% increase in the Medicare levy will be passed by the Senate. The bill will be put before the upper house later today, although a vote is unlikely before September. The Labor Opposition is pushing for the increased levy to be restricted to
By Leith van Onselen A leading tax expert has thrown a hand grenade at the Turnbull Government’s company tax cut policy, claiming that the rich would benefit the most if company taxes were lowered. From The AFR: Richard Vann, the Challis Professor of Law at the University of Sydney, said the government was relentlessly eager
Via Domainfax: Foreign purchasers are buying as much as 40 per cent of all new apartments in Melbourne, with new figures showing a surge in a tax raised from offshore investment. Official data, released to The Age under freedom of information legislation, reveals that a tax on foreign buyers of residential property, introduced in mid-2015, has become
By Leith van Onselen Commentators often talk about 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 power, the faster decline in electricity demand, and the more fixed
By Leith van Onselen The South Australian Government has joined New South Wales and Victoria in privatising its land registry in a bid to raise a quick $1.605 billion. From The AFR: A consortium comprising Macquarie Infrastructure and Real Assets and one of Canada’s largest public sector pension funds has paid $1605 million for the
By Leith van Onselen The Australian’s David Uren has penned a spurious piece today arguing that the public sector is responsible for the rise in the cost-of-living since the Global Financial Crisis: Inflation in the cost of public-sector services is rising at more than five times the pace of the private sector, and is equivalent
Cross-posted from The Conversation: Half of all Australians are now able to connect to the NBN. But around 40% of eligible households have chosen not to connect to the network. Our modelling shows that subsidising the NBN is key to encouraging more Australians to connect. This would benefit the economy as a whole, but hurt
By Leith van Onselen I have complained repeatedly that Australia’s universities have turned into ‘degree factories’ since student numbers were uncapped in 2009, whereby universities teach as many students as possible to accumulate Commonwealth government funding through HELP/HECS debts. At the same time, quality of teaching, and students’ ability to secure subsequent employment, remain distant
By Leith van Onselen In February last year I noted that the cigarettes tax – a policy adopted by both major parties in the lead-up to the Federal Election – would achieve two broad outcomes: It would fail to raise the projected revenue. With smoking rates falling, it is a declining tax base and this decline
By Leith van Onselen I have noted previously 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
By Leith van Onselen Back in September, Michael West reported how the Big Four accounting firms have taken corporate welfare to an extraordinary level, earning up at least $2.6 billion in fees from the Australian government over the past ten years at the same time as they advise multinationals on how to avoid paying tax.
By Leith van Onselen Last month it was revealed that a draft tax ruling issued by the Australian Taxation Office (ATO) in March 2017 could allow “passive” family investment companies to claim tax refunds and deductions, opening the door for wealthy families to claim back hundreds of millions of dollars. This draft ruling overturned the
By Leith van Onselen Former Labor minister, Craig Emerson, has penned an article in The AFR today talking up Labor’s plan to tax discretionary trusts and chastising the Coalition for balking at reform when it was in office: …two of the Coalition’s last three treasurers agreed that such action needed to be taken, only to
By Leith van Onselen ACIL Allen has produced a report confirming what many of us already know: that the proposed $1 billion concessional loan to Adani to build the Carmichael coal project is a dud that poses great risks to Australian taxpayers. From The Canberra Times: The economic assessment of the troubled project’s outlook found
By Leith van Onselen The business lobby’s new found propaganda drive surrounding company tax cuts has continued, with Business Council of Australia (BCA) CEO Jennifer Westacott has labelling Opposition Leader Bill Shorten a liar for claiming that reducing the company tax rate will adversely affect economic growth. From The AFR: …the Business Council of Australia
By Leith van Onselen Labor leader Bill Shorten addressed the New South Wales Labor conference over the weekend, whereby he outlined his plan to tax trusts at 30% that would raise $17.2 billion over 10 years. Shorten said the extra revenue could be used to fund services such as education and health, while he stressed
By Leith van Onselen The Australian Greens have launched a new housing affordability package, entitled “Everyone needs a home”, which endeavours to remedy Australia’s “rigged housing market” by curbing negative gearing and the capital gains tax (CGT) discount, as well as help the states switch from stamp duties to land taxes. The package would also
By Leith van Onselen The business lobby’s new found propaganda drive surrounding company tax cuts continues in earnest today, with Business Council of Australia (BCA) president, Grant King, penning the following drivel today in The AFR: Much of the political debate about important changes Australia needs to make is focused around one question: what is fair? Never
By Leith van Onselen It’s the policy that just won’t die! Members of the Business Council of Australia’s (BCA) board and the CBA’s chief have once again called for the corporate tax rate to be reduced in order to lift the nation’s economic growth rate to at least 3%. They argue that the economy needs
Cross-posted from The Conversation: There is very little, if anything, to commend discretionary trusts. The benefits they bring, and it’s hard to see many, are dwarfed by their destructive and damaging features. Trusts are usually used to allocate money to members of a group, usually a family. Under a discretionary trust, the only way a
By Leith van Onselen After confirming over the weekend that Labor would target trusts, shadow treasurer Chris Bowen has stated that Labor would still allow people to use trust structures if it wins the next federal election. However, it will crack down on the use of trusts as vehicles to reduce tax liabilities, although there
At The Australian: The federal government has launched a war on aggressive negative gearing strategies to depreciate the value of second-hand household items to save on tax, including air-conditioners, ovens, carpets and pool equipment. Draft legislation released by the federal Treasury for the first time reveals in detail sweeping proposed changes to rules on deductions
By Leith van Onselen Labor leader, Bill Shorten, confirmed over the weekend that the party would target trusts, which it views as a tax shelter favouring the wealthy. From The AFR: Opposition Leader Bill Shorten will detail a Labor clampdown on trusts and other tax minimisation vehicles… Mr Shorten confirmed the push against trusts on Sunday…
By Leith van Onselen At the same time as Labor is crowing about rising inequality, Prime Minister Malcolm Turnbull confirmed yesterday that the Coalition would push on with its pledge to cut the company tax rate to 25% for all companies. From The Australian: [The Prime Minister] turned attention to the government’s plan to cut
By Leith van Onselen In the year leading-up to the Turnbull Government announcing its company tax cut, I frequently argued that it would have minimal impact on Australian business owners and shareholders because of Australia’s dividend imputation system. For example: Whether company tax cuts are extended to $10 million turnover businesses or $50 million turnover
By Leith van Onselen The Australian Labor Party’s national conference will be held in late July, and it is rumoured that the left faction is seeking the re-implementation of an inheritance tax. From The Australian: Several left-aligned branches support the introduction of a national inheritance tax to address the growing divide between rich and poor:
It appears Treasury is the process of slaying another gormless Treasurer, via The Australian: Scott Morrison will today launch a strident defence of the government’s fiscal strategy, warning that an earlier than planned return to budget surplus risks dampening an economy that is gathering momentum for the first time in almost a decade. The Treasurer
Cross-posted from The Conversation: Vacant housing rates are rising in our major cities. Across Australia on census night, 11.2% of housing was recorded as unoccupied – a total of 1,089,165 dwellings. With housing affordability stress also intensifying, the moment for a push on empty property taxes looks to have arrived. The 2016 Census showed empty