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.
By Leith van Onselen Following on the heels of MB’s detailed report on Tuesday arguing (yet again) for one’s principal place of residence to be included in the assets test for the Aged Pension, the Australian Housing & Urban Research Institute (AHURI) has released a report similarly arguing for reforms to make the Aged Pension
Let’s take an amusing trip down memory lane to assess WA Budget forecast performances. There are many metrics we could choose but my personal favourite is business investment. In 2012/13 when it was abundantly clear that the Chinese slowdown had commenced, there was nothing but blue sky and endless mining investment ahead: By the time
By Leith van Onselen In Tuesday’s Budget speech, Treasurer Scott Morrison proclaimed that the Government is “busting congestion in our cities” and announced “a $1 billion Urban Congestion Fund to support projects at a State level to fix pinch points and improve traffic flow and safety”. Yesterday, Fairfax announced that Sydney would be the big winner from
Via The Guardian: Bill Shorten has pledged to “go further and do better” for low and middle-income Australians, supporting the Turnbull government’s first phase of budget tax cuts, and then almost doubling the tax relief from 2019-20 for up to 10 million workers. The Labor leader used his budget reply speech to launch Labor’s campaign for
By Leith van Onselen The Federal Budget’s decision to slash the permanent funding of the Australian Securities and Investments Commission (ASIC) by $26 million to $320 million by 2020-21, as well as cut staff numbers at the agency by 30 investigators, has been slammed by Labor MP and former federal prosecutor, Matt Keogh. From The
Cross-posted from The Conversation: In the federal budget, Treasurer Scott Morrison promised tax cuts to all working Australians in the form of an offset and changes to tax income thresholds. But our analysis of Treasury data shows that while the government advertised these as payments to low and middle income Australians, most of the benefits
By Leith van Onselen WA’s Labor Government has announced that it will follow the other states and hike stamp duties on foreign buyers in today’s State Budget, and this has the property lobby spitting chips: A plan to slug foreign property buyers in WA with a 7 per cent surcharge will damage recovery of the
By Leith van Onselen Since the 7-Eleven migrant worker scandal broke in 2015, there has been a regular flow of reports about the systemic abuse of Australia’s various migrant worker programs and visa system, as well as widespread wages theft across multiple business lines. For example in March, Fairfax reported that almost two-thirds of businesses audited
By Leith van Onselen The chorus calling for a lift in Australia’s pathetically low Newstart Allowance for unemployed workers (the ‘dole’) is getting too loud to ignore. In recent weeks, we have witnessed Deloitte Access Economics senior partner Chris Richardson, the Business Council of Australia, and independent senators Tim Storer and Derryn Hinch all call
By Leith van Onselen Analysts have attacked last night’s Budget measure to assist 20,000 more older Australians stay in their homes, claiming it will worsen housing affordability by locking-up family friendly homes. From The AFR: Treasurer Scott Morrison’s third budget includes billions of dollars in funding for thousands of extra home-care packages, designed to help ease
By Leith van Onselen The ABC’s Michael Janda has done a good job explaining how running a high immigration program fudges the Budget numbers, and why high immigration levels are all but locked-in: Australia has been relying on one of the highest population growth rates in the developed world to maintain economic growth, and the
By Leith van Onselen The Turnbull Government’s stubborn insistence on cutting Australia’s company tax rate to 25% from 30% has hit an insurmountable roadblock, with the four crucial Senate cross-benchers required to pass the legislation digging in against the package. From The Australian: Key crossbenchers say they are more unlikely to support the government’s corporate
Or in the common tongue, bullshido. Earlier I reported Moody’s: Australia’s budget for 2018-19 moves more quickly along the path of fiscal consolidation than was expected at the Mid-Year Economic and Fiscal Outlook, with a modest surplus forecast in 2019-20, one year earlier than expected. From a sovereign rating perspective, the constraints on fiscal consolidation
By Leith van Onselen According to this year’s Budget papers, every dollar the federal government invests in infrastructure it would deliver a return of $4 to the economy. From The AFR: “The government has a role to provide infrastructure where it leads to net benefits for businesses and communities and where there are barriers that prevent
By Leith van Onselen Back in October, we reported how secret NSW Government documents had been released revealing that the Parramatta Light Rail Project – the centrepiece of the Government’s plans to cement Parramatta as Sydney’s second central business district, as well as facilitate the building thousands of apartments around Sydney Olympic Park – had
By Leith van Onselen The Australian has reported that this year’s Federal Budget has slashed funding for apprenticeships by $200 million: Federal funding promised for apprenticeships and training by 2021 has been cut by $200 million as a revenue shortfall forces the government to overhaul and extend its troubled skilled workers fund. A year after
By Leith van Onselen In years gone past, the Federal Budget gave us a clear indication of the size of Australia’s immigration program for the year ahead by explicitly publishing the intake. Now that figure seems to be hidden somewhere deep inside Immigration Minister Peter Dutton’s skull. I’ve spent a good hour this morning scouring
Via the excellent Damien Boey at Credit Suisse: No stimulus here Overnight, we published a note about the likely economic impact of the FY19 budget (“Budget FY19 – no stimulus here”, dated 8 May 2018). In short, we see: 1. Modest fiscal tightening: The underlying deficit is likely to shrink to 0.8% of GDP from 1% of
By Leith van Onselen The Budget delivered tonight by Treasurer Scott Morrison was a fairly dull affair with most of the measures leaked beforehand, therefore ensuring there were no major surprises. There is not a lot in here to upset anybody, but also nothing to ‘wow’ the electorate either (and that’s a good thing). Budget
Futureboom! It’s always coming. And the good news today is that it will fix the Budget. Yay. Here are the Budget assumptions: Futureboom! is upon us by June this calendar year as growth surges back to 3% and stays there, something it has been unable to do since the GFC. It will be delivered by
You’ve got to love Chris Joye, salesman par excellence: Treasurer Scott Morrison has delivered a brilliant, election-winning budget that could be a game-changer by tapping into deep community discontent with political weasel-words that for a decade have overpromised and undelivered, eroding trust in our leaders. Australians no longer seem willing to be suckered by “cash
By Leith van Onselen The Australia Institute (TAI) has released its latest Follow The Money podcast, which provides “14 reasons why the case for a company tax cut has collapsed”. These are summarised below: 1/ Giving business a $65 billion dollar tax cut means billions of dollars less for schools, hospitals and other services. Giving
Cross-posted from The Conversation: Treasurer Scott Morrison faces a difficult balancing act in the federal budget. He wants to cut income taxes, deliver new infrastructure spending and still reach a surplus by at least 2019. If he’s serious about maintaining the surplus, here are five ways the Treasurer could boost revenue to make the numbers
By Leith van Onselen The Australia Institute (TAI) reports that tonight’s Federal Budget is likely to expand the Pension Loan Scheme (PLS) to allow all retirees to obtain a state run reverse mortgage: Reported moves to expanded the under-utilised Pension Loan Scheme (PLS) to allow pensioners access to the scheme would be a welcome budget breakthrough.
By Leith van Onselen Is there a bigger hypocrite on Budget-related matters than former Treasurer under the Howard Government, Peter Costello? Today, Peter Costello has slammed the Turnbull Government for not doing enough to reduce government debt and has urged the Government to cut spending by at least $18 billion to address the debt issue.
By Leith van Onselen Yesterday’s leak that tonight’s Federal Budget will allocate $24.5 billion to major infrastructure projects, including federal contributions to rail projects in Sydney, Melbourne and Perth, has failed to impress Infrastructure Partnerships Australia (IPA) CEO, Adrian Dwyer. Last week, Dwyer accused the Turnbull Government of reducing infrastructure investment and called for an extra
Via The Australian: A multi-billion-dollar aged-care and retirees package — including 20,000 new home-care places to allow older Australians to live in their homes for longer — will be the centrepiece of a government values statement in tonight’s budget. Scott Morrison will capitalise on $41 billion in legislated budget repair measures to deliver for older
CoreLogic has produced an interesting analysis of the rivers of gold flowing to the states from Australia’s property bubble, whereby the tax take has doubled in just 11 years: Over the 2016-17 financial year, state and local governments collected $52.5 billion in taxes from property with the figure climbing by 5.9% over the year. The
By Leith van Onselen Ever since the Turnbull Government launched its plan to cut the company tax rate to 25% from 30%, it has argued that lower company taxes are vital to ensure that Australia remains a desirable destination for foreign investment. Without such cuts, the Coalition argues, Australia would lose-out on foreign investment to
From The Conversation: As we move closer to Treasurer Scott Morrison’s third budget, what we do know is this – Australia has a revenue problem. A more global and digital economy; an ageing population with fewer taxpayers and sluggish wage growth make future predictions of revenue even more precarious. There’s never been a better time
