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.
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Via AFR: The cost of the JobKeeper wage subsidy will increase by more than $15 billion due to the hammer blow to business caused by the Victorian coronavirus crisis. The $15.6 billion JobKeeper blowout, which will take the total cost of the scheme to $102.2 billion this financial year, is due to two factors. First,
Classical economics would prescribe decades of austerity to pay off the levels of government spending seen in the COVID-19 pandemic. But there’s another way, says modern monetary theorist, Dr Steven Hail, Research Scholar at the Global Institute for Sustainable Prosperity and Economics Lecturer at Australia’s University of Adelaide. Via Struggles from Below: A recent New
Housing Minister Michael Sukkar told a conference that housing policy will be a key component of the federal government’s 2020 Budget on 6 October. Amongst other things, extending the First Home Loan Deposit Scheme and changes to the National Housing Infrastructure Facility are believed to be under consideration. However, Sukkar has reportedly ruled out funding
We are in a strange political environment. Globally there have been trillions of dollars of government stimulus announced, deficit hawks have turned chicken, and formerly staunch opponents of government intervention have been leading the charge. How should investors assess each government stimulus announcement? One day the Australian government told us they had the right level
Who cares. Deficits are irrelevant… Overview • On Aug. 3, 2020, the State of Victoria declared a “state of disaster” in response to rising cases of COVID-19, triggering additional lockdown measures that we expect to severely hit economic activity. • There is an increasing possibility that we will lower our long-term rating on Victoria within
Labor defence spokesman Richard Marles has accused the Morrison government of mismanaging the $90 billion future submarine program, claiming its mismanagement has compromised Australia’s national security. In particular, Marles accuses the government of being “negligently premature” by choosing France’s Naval Group ahead of rivals before designs for the submarines had even been finalised: Mr Marles
Who knows what drives this bloke. At the AFR: Former federal Treasury boss and bank chairman Ken Henry says Australia’s “stupidity” and economically “illiterate” failure to tax the mining boom properly has cost the country dearly and prevented a badly needed cut to the 30 per cent company rate to boost investment and worker wages.
Alan Kolher maintaining the MMT rage.
Special report from Gerard Minack: Monetising deficits has started. Expect it to stay. The helicopters have arrived. Central banks are printing money to fund expanding government deficits. I expect them to stay: fiscal will remain the lead instrument for cycle management through the coming expansion, and it will be backstopped by central banks. Deployed with
Here is the truth of it once you peel away all of the politicised bull. Via Reuters: The U.S. economy could benefit if the nation were to “lock down really hard” for four to six weeks, a top Federal Reserve official said on Sunday, adding that Congress can well afford large sums for coronavirus relief
Victoria University’s Janine Dixon and Jason Nassios have made the compelling case that cutting company taxes in the current environment is bad policy. Specifically, it would provide a windfall gain to foreign investors who have already invested in Australia at the current company tax rate. Hence it would shift a significant fiscal burden onto Australian
The Andrews Government’s COVID-19 failures continue to mount. In addition to botching hotel quarantine, thus enabling COVID-19 to be imported into the community, the Andrews Government also starved the public health unit of funding, leaving it critically short of contract tracers: Victorian Chief Health Officer Brett Sutton’s team was so poorly funded that top bureaucrats
The Australian Council of Social Service (ACOSS) has called on the Morrison Government to abandon further $16 billion of tax cuts in favour of permanently lifting JobSeeker by $185 a week: ACOSS is also calling for the rate of the JobSeeker unemployment payments to be permanently raised by $185 per week. Before the pandemic, the
I am happy for stimulus to prioritise speed over precision given that is its job. But there are limits. If K&S Corporation is any guide then JobKeeper has crossed them: This is a 600% increase in net profit: All of it attributable to $12.4m in JobKeeper payments. WTF.
New data from the Australian Prudential Regulatory Authority (APRA) reveals that the number of Aussies taking out private health insurance has crashed to its lowest level since 2006. According to APRA, private health hospital coverage of adults fell from 44.7% in 2018 to 44% last year, with losses experienced across all jurisdictions: More worryingly, coverage
As he should. The guy is a bloody idiot. A couple of pieces today by David Crowe suggest that Scummo may realize it: Policies to create jobs will take priority over calls for faster tax cuts in the next phase of the Morrison government’s economic stimulus amid a political fight over the cost of bringing
Griffith University professor, Tony Makin, has a long history of attacking government fiscal intervention in the economy. As noted by Ross Gittins, Makin is “the go-to guy for anyone who’d like an independent report asserting that fiscal policy doesn’t work – never has and never could”. Predictably, Makin was a harsh critic of the Labor
Lots of demands for sensible reform on the weekend, triggered by an absurd Depressionberg. Via the AFR: “I notice in the Financial Review today, not everyone is a Keynesian and thinking about income support. It is important to go to the supply side. Thatcher, Reagan, that’s an inspiration,” Frydenberg told reporters on Friday’Reform like we’ve
An expected casualty of the COVID-19 economic meltdown are Australia’s private schools, which are bracing for an exodus as financially strapped households tighten their purse strings: State school principals are expecting an increase in student numbers as financially stretched families turn away from private schools… Some private schools have already offered fee cuts and deferrals,
Treasurer Josh Frydenberg appeared on the Today Show this morning where he confirmed that personal tax cuts are still on the government’s agenda as a way to help lift Australia out of the worst recession since World War Two: “People already now are benefiting from that $158 billion worth of tax cuts. There’s an extended
First from Ian Verrender: Forecasting is never easy. You only need to look at the rosy forecasts dished up by Treasury over the past decade. The Reserve Bank hasn’t been any better. They’ve pretty much all been wrong. Wages growth has been set for an Apollo mission-style take-off every year in recent memory. Inflation, household
Via S&P: MELBOURNE (S&P Global Ratings) July 23, 2020–S&P Global Ratings today said the treasurer’s economic and fiscal update released this morning is consistent with the ‘AAA’ rating and negative outlook on Australia (see “Australia Outlook Revised To Negative As COVID-19 Outbreak Weakens Fiscal Outcomes; ‘AAA/A-1+’ Ratings Affirmed,” published April 8, 2020). The extension and refinement of the government’s
Earlier this week, Victoria’s public sector union reached agreement with the Andrews State Government regarding a pay rise for public servants. A 2% pay rise was awarded, along with a mobility clause and 16 weeks’ parental leave for primary and secondary carers, which effectively increased the pay rise to more than 3%: Treasurer Tim Pallas
Not much to report in the Budget update. Basically, because the deficits don’t matter anyway and the economic forecasts are worthless as the second wave wreaks havoc. Noteworthy is two consecutive years of falling growth. A depression in other words: Interestingly, Depressionberg has destroyed the ABS’s jobs numberwang: We prefer the Roy Morgan definition which
Liberal MPs have intensified calls to bring forward $143 billion in personal tax cuts to lift household income and stimulate the economy: “The only thing better than a tax cut is an early tax cut,” Victorian Liberal senator James Paterson said. “If we want Australians to lift their heads and look towards the future with
Josh Recessionerg was always going to kill Australia’s record growth run. He is far too attached to his surplus and appears to have no idea how bad things are in Australian economic structure. We can’t blame him for the virus but we can blame him for driving the Australian economy to stall speed before it
The coronavirus supplement for JobSeeker recipients will be reduced from $550 per fortnight to $250 from 25 September. This will reduce the maximum unemployment benefit for a single person to about $800 a fortnight. The revised JobSeeker allowance will apply until the end of 2020, although the federal government has signalled that it is likely
Via the excellent Geroge Tharenou at UBS: JobKeeper extended by 6 months to Mar-21, but tapered, worth extra ~$16bn The Australian Government announced a six month extension of the JobKeeper wage subsidy, which was due to expire at the end of Sep-2020, to March-2021. This is a longer extension than flagged by previous Government comments,
The ATO’s Taxation Statistics for 2017-18 have been released, which shows that the number of negatively geared property investors rose by 200,000 over FY18, with total losses ballooning by $800 million to $13.1 billion: The average loss per negatively geared investors was $9,924 in FY18, up from $9,461 in FY17. The below table also shows
In March, the Parliamentary Budget Office reported that the “fair value” (or saleable value) of the National Broadband Network (NBN) was only $8.7 billion – less than one-third the federal government’s equity investment. This suggested the NBN required a $21 billion write down. Now, the Morrison Government has put the NBN’s valuation under review, suggesting
