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.
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
Yesterday was good day for the Aussie economy, via The Australian: Australians will be handed an immediate $15 billion in tax cuts in a bid to boost the economy, drive retail sales and create new jobs, after parliament last night rubber-stamped Scott Morrison’s signature $158 billion tax relief package. The combined effect of instant tax
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
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
Amusingly empty, at the AFR: Scott Morrison says the government’s income tax cuts could pass both houses of Parliament by as early as Thursday but it will be just the start of what is “a chocked program” of legislation between now and the end of the year. Speaking to The Australian Financial Review on the
At the AFR it is all beer and skittles for Josh Frydenberg: Department of Finance monthly budget figures show the underlying cash deficit for the 11 months to May 31 in the current financial year had narrowed to $115 million down from $4.9 billion in April and $2.25 billion lower than the 2018-19 revised budget
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
From The ABC comes news that the Big Four Australian banks have axed thousands of jobs, with automation to cause further job losses: Banks are thousands of staff off peak levels… In 2008, the Commonwealth Bank employed 39,621 full-time equivalent employees, a number that rose to 46,000 four years ago, before falling back to 43,771
There are fears the federal budget could take a $20 billion hit after an Australian National Audit Office (ANAO) report warned that a $19.5 billion government loan extended to NBN Co might not be repaid because of doubts the NBN will meet financial projections. From The AFR: [ANAO] classified the chances that the NBN’s financial
Great excitement at COMMSEC: Engineering: Engineering construction work done fell for the third straight quarter, easing by 4.9 per cent in real (inflation-adjusted) terms in the March quarter. And work done is down 13.5 per cent on a year ago. Infrastructure boom: Excluding the resource sector (coal, oil, pipelines etc.) work yet to be
John Hearsch, president of rail advocacy organisation Rail Futures, believes Sydney’s second airport at Badgerys Creek could once and for all kill the proposal to build a high speed rail (HSR) line linking the major East Coast capitals. From News.com.au: “In my view, the decision to go ahead with Badgerys Creek Airport has, in practical
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:
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
By Leith van Onselen The NSW Office of State Revenue has released stamp duty data to May, which reveals a massive $1.6 billion (23%) decline over the past year and a $2.1 billion (29%) decline since stamp duty receipts peaked in October 2017: The latest retracement in stamp duty receipts follows a sharp 22% decline
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,
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
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:
By Leith van Onselen Labor’s frontbench will meet on 24 June, amid growing pressure from within the party’s ranks to back the federal government’s full income tax package. Some Labor MPs are of the view that the party may need to accept that the Coalition’s election win has given it a mandate for its three-stage
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
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
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’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
Not that you’d know it from the LNP cheer squad: The government is piling pressure on Anthony Albanese to pass its full tax cut agenda when parliament resumes in July, with Finance Minister Mathias Cormann declaring the Opposition Leader would be holding on to “the politics of envy’’ rejected at the election by not backing
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
By Leith van Onselen The NSW Budget was released yesterday, which downgraded the state’s stamp duty receipts by a further $232 million over the forward estimates, and marked a $10.6 billion plunge in stamp duty revenue since 2017. The below charts iuulstrate how NSW’s stamp duty projections have been downgraded over the past year. First,
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
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
By Leith van Onselen Treasurer Josh Frydenberg has refused to provide Labor with modelling showing how much the Coalition’s tax cuts would benefit people earning over $180,000. From SBS News: The opposition, which is weighing up whether to support the full $158 billion package, wanted to know exactly how much of the package would benefit
Awesome stuff from CA: Ten million taxpayers will have to wait for July 1 tax cuts, with Centre Alliance declaring the legislation is not “urgent” and is unlikely to pass when Parliament returns. The prediction effectively torpedoes hopes that the $1080 tax cuts the Prime Minister promised during the election will quickly pass Parliament –
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
