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.


“Unjustifiably bad” expat CGT policy still on Coalition agenda

The federal government announced in the 2017 Budget that it would remove a capital gains tax (CGT) exemption for around 100,000 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 being “unjustifiably


ScoMo gets his tax cuts, now for gas reservation…

Via The Australian: Senator Griff said discussions with the government on measures to reduce gas prices, which the minor party had called for in order to support the entire tax cuts ­package, were “progressing very well”. An east coast gas reserve is one policy being considered, as well as a modification to the Australian Domestic


Grattan: ScoMo tax cuts badly regressive

Via the Grattan: Federal Parliament should pass the Government’s Stage 1 tax cuts immediately but should defer consideration of the controversial Stage 3 cuts, according to a new Grattan Institute working paper. Budget blues: why the Stage 3 income tax cuts should wait finds passage of the Stage 1 cuts would give the economy a much-needed boost at


Exclusive: $180k salary is filthy rich

Via Domain comes some “exclusive” fake news: More than two thirds of the final stage of the Coalition’s $158 billion income tax cut package will flow to workers earning under $180,000, new figures show, as the Morrison government moves within striking distance of its first policy victory since the election. The Coalition has refused to hand over costings


Denniss: Recessionberg’s tax cuts Keynesian stupidity

From Richard Denniss at the AFR: Imagine if the Reserve Bank of Australia (RBA) conducted monetary policy the way the Morrison government conducted fiscal policy. Step one: publish optimistic forecasts of GDP and wage growth to create “confidence”. Step two: set interest rates five years down the track, based on those optimistic forecasts. Step three:


Should we run infrastructure like the RBA?

So says the RBA: Dr Lowe also said major infrastructure funding should be run like monetary policy – at arm’s length from the government – so that voters trust it is fit for purpose. “If we don’t get it right then the public doesn’t trust the politicians,” he said at the Crawford leadership forum in Canberra


Labor to support stages 1&2 of tax cuts

Via Albo: What we have determined this morning to do is to propose a negotiating position to the Government which would bring forward tax cuts faster for those who need it and importantly those who will spend it to stimulate demand in the economy.” We have determined the following position: Stage one – of course,


Productivity Commission: Dump stamp duties for land taxes

Former Productivity Commission chairman Peter Harris says the federal government should consider adopting key recommendations in the ‘Shifting The Dial’ report, which the Commission released in 2017. In particular, he has called for state governments to phase out stamp duties on property transactions in favour of a land tax, arguing that this would help to


Everyone but cruel Coalition wants Newstart lifted

By Leith van Onselen When it comes to cruelty against the unemployed, it’s hard to top the Morrison Government. As the Budget heads back towards surplus, and with the Government pledging tens-of-billions of dollars for tax cuts, it refuses to lift Australia’s Newstart Allowance, which is about to fall to 30% below the poverty line:


How the Pharmacy Guild gouges Australians

By Leith van Onselen You would be hard pressed to find a bigger racket than Australian pharmacies. How many any other industries in Australia have had laws implemented that ban new entrants from opening within 1.5 kilometers of an existing business? How many other industries allow only registered professionals in the field to own and


Industry parasites demand more privatisations

With the net debt of Australia’s state governments set to rise sharply in coming years to finance infrastructure projects for Australia’s population ponzi, analysis shows they have almost $220 billion worth of assets that could be privatised. Accordingly, IFM Investors CEO, Brett Himbury, is calling for further asset sales to the nation’s superannuation funds. From


Is an NBN writedown imminent?

By Leith van Onselen Last month, the NBN reported that it “continues to bleed” cash as revenue targets remain elusive: In its third-quarter results, released on Monday, NBN Co announced revenues of $2 billion but a net loss of $3.4 billion for the nine months to March 31, bringing accumulated losses to $20.7 billion over


NSW Treasurer demands federal reform

NSW’s Treasurer, Dominic Perrottet, has labelled federal-state financial relations “a mess” and demanded fundamental reform. From The SMH: The NSW government has appointed an expert panel to review federal financial relations from a state perspective. It will identify ways to improve the current system and make it more reliable. Mr Perrottet said the aim was


Rentier media blames states for infrastructure “debt bombs”

Witness the businomics ideology go to work. At The Australian: Debt across Australia’s states will explode by more than $100 billion, as governments boost spending on infrastructure and public servants at the same time their budgets are being sideswiped by weak GST revenue, slowing economic growth and plunging stamp duty revenue. An analysis of this


Universities waste international student billions on administration

Earlier this month, Auditor-Generals from Australia’s three largest states warned that Australia’s universities have become dangerously reliant on fees from international students, which have ballooned on the back of the massive rise in international student numbers, as shown below: As you can see, the number of international students studying in Australia has nearly doubled to


Moody’s perverse take on the NSW Budget

Leith is busy putting together his critique of the NSW Budget, which has added some terrifically ill-timed austerity to the NSW economy. In the meantime Moody’s has delivered this clangor in its assessment: Despite the housing market correction delivering a sharp decline in transfer duties, New South Wales’ 2020 budget highlights a continued strong operating


Coalition tax cuts to favour men over women

By Leith van Onselen The Australia Institute (TAI) has released new research showing that men will receive the lion’s share of the Coalition’s higher-income tax cuts: The final stage of the Morrison Government’s unlegislated income tax plan, stage 3(a) favours males by a ratio of almost two to one, according to a new distributional analysis