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.


WA Liberals vote for WAXIT

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


VIC government hides foreign property buyer tax windfall

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


Is the public sector driving up the cost of living?

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


The NBN needs subsidies if it is to work

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


Demand-driven uni delivers pay dirt for vice-chancellors

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


West Gate Tunnel: Another expensive infrastructure waste?

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


Coalition to plug wealthy tax loophole

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


Debating Labor’s trusts policy

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


ACIL Allen: $1 billion Adani loan a dud

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


BCA resorts to name calling over company tax cut

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


Greens launch Budget-saving housing affordability package

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


Grant King ramps-up company tax cut propaganda

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


Overwhelmingly, trusts are used to minimise tax

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


The last days of negative gearing will not be fun

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


Labor is justified in targeting trusts

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…


Company tax cut sucked into dividend imputation black hole

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


Labor to push for an inheritance tax?

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:


Treasury to add Morrison’s head to its trophy wall

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


Vacancy tax good, land tax better

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