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.
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More great discussion from Martin North’s bear porn channel:
Via Business Insider comes some more modelling on negative gearing reform this time by Macquarie of the modelling done by Cadence Economics for Master Builder’s yesterday: Based on the evidence offered below from Macquarie Bank, it suggests the policy changes may not have that much of an impact on the broader Australian economy, even in
By Leith van Onselen April’s joint Treasury/Department of Home Affairs propaganda report, Shaping a Nation, confirmed what many of us already knew: that most new jobs created have gone to migrants: Recent migrants accounted for two-thirds (64.5 per cent) of the approximately 850,000 net jobs created in the past five years. For full-time employment, the impact
By Leith van Onselen Former Prime Minister, Paul Keating, seems to be losing his marbles in his old age, recommending that Australian workers get slugged another levy to cover ‘geriatric’ care for people aged 80-plus: Former prime minister Paul Keating has called for a national insurance scheme to help people pay for healthcare, accommodation and
Yesterday we saw China’s “whatever it takes” moment, via Bloomie: President Xi Jinping vowed “unwavering” support for non-state firms over the weekend, the country’s stock exchanges committed to help manage share-pledge risks, and the government released a plan to cut personal income taxes. That follows a rare coordinated effort from top financial officials on Friday to
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By Leith van Onselen Back in December 2015, former Prime Minister Malcolm Turnbull launched his National Innovation and Science Agenda under much fanfare. According to Turnbull, this agenda “will invest $1.1 billion to incentivise innovation and entrepreneurship, reward risk taking, and promote science, maths and computing in schools”, and will include tax concessions and tax
By Leith van Onselen Over the Weekend, The SMH reported how rising household debts among older Australians could ultimately cripple Australia’s retirement system: The number of Australian homeowners over the age of 65 still carrying mortgage debt has trebled since 2002, raising concerns the nation’s retirement savings could be absorbed into the housing boom. In 2002
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By Leith van Onselen When the National Broadband Network (NBN) arrived in my area in late 2016, residents were greeted with a barrage of junk mail advertisements from all manner of internet service providers offering competitively priced internet at fast speeds. At the time, I was under contract with Telstra, so I did not consider
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You wouldn’t know it from reading the MSM but Australia is in the middle of its second largest coal boom in history: The causes are many: China rationalisation and stimulus, supply side accidents etc. Both will ease from here most likely but not crash. And that means this, via the AFR: The federal government could
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By Leith van Onselen Weeks after the federal government backflipped on the Gonski 2.0 needs-based school funding, increasing funding for non-government schools, the federal Labor Opposition has pledged an extra $14 billion for public schools over the next decade. From The AFR: The announcement, to be made by Opposition Leader Bill Shorten and Labor’s education
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By Leith van Onselen The federal government announced in the 2017 Budget that it would remove a capital gains tax (CGT) exemption for expatriate Australians who sell their main residence while overseas. While the measure was projected to raise $581 million over the forward estimates, it has been widely condemned by tax and legal experts
By Leith van Onselen Weeks after the federal government backflipped on the Gonski 2.0 needs-based school funding, increasing funding for non-government schools, the Victorian Labor Government has done likewise: The Labor government said on Monday it would give $400 million over four years to the private school sector. The sum more than triples the $120
By Leith van Onselen Good news. The Australian Taxation Office’s (ATO) has collected an extra $5.6 billion over the past two years through its multinational tax avoidance taskforce. From SBS News: A clamp down on tax avoidance by big corporations and wealthy individuals has allowed the Australian Taxation Office to rake in an extra $5.6
By Leith van Onselen The federal government announced in the 2017 Budget that it would remove a capital gains tax (CGT) exemption for expatriate Australians who sell their main residence while overseas. While the measure was projected to raise $581 million over the forward estimates, it has been condemned by tax and legal experts as
By Leith van Onselen Last month, the $17 billion WestConnex toll road and tunnel in Sydney was dubbed the “biggest misuse of public funds for corporate gain in history” by transport analyst Christopher Standen from the University of Sydney. This hideously expensive project will see existing free public roads like the state-owned M4 (that has already been paid off)
The AFR operates in a permanent state of cognitive dissonance. On the one hand it is supposed be all for “markets”. On the other it is the number defender of private vested interests in the country. This is no more clear than in its panicked propaganda campaign in recent weeks supporting Australian bank exceptionalism during
