Ross Gittins wants to see Keynesian stimulus: … any fiscal stimulus is very short run, so as to support the economy before monetary stimulus fully kicks in, thereby minimising the harm done. Remind you of anything? The package of budgetary measures – the cash splashes and shovel-ready capital works – designed mainly by Treasury’s Dr
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 Victorian Premier, Dan Andrews, has tacitly admitted that the state is unable to build infrastructure fast enough to keep pace with manic immigration-driven population growth. From The AFR: “We are pretty well at full-tilt with sand, gravel and concrete,” Mr Andrews told The Australian Financial Review’s National Infrastructure Summit in Melbourne
By Leith van Onselen MB has argued repeatedly in favour of legalising marijuana on the following grounds: It would bring marijuana into line with alcohol and tobacco, which are both legal and regulated despite being more dangerous to health; It would guarantee purity of supply; It would reduce profits to organised crime; and It would provide
By Leith van Onselen As the NSW Government’s infrastructure building program approaches $100 billion, and Sydney’s population grows out of control, NSW Premier Gladys Berejiklian has subtly the federal government pay its fair share. From The SMH: Ms Berejiklian made a subtle push for greater financial commitments from Canberra, citing the state’s $90 billion in
Via The Australian: Finance Minister Mathias Cormann has ruled out doing deals with crossbench senators to win their support for the Coalition’s $158 billion personal income tax cuts, intensifying pressure on Labor to back the plan. The blanket refusal by the government’s Senate leader to negotiate special deals or buckle to demands from Pauline Hanson
In February 2014, a BBC Panorama investigation exposed systemic student visa fraud, which included secret filming of government-approved English-language exams and showed candidates having their tests being fraudulently completed by “fake sitters”. A subsequent investigation by the British Home Office led to 50,000 English language tests taken by international students being declared invalid, 34,000 international student
By Leith van Onselen Academic researchers, Rachel Ong and Gavin Wood, warns that the number of mature age Australians carrying mortgage debt into retirement is soaring, endangering Australia’s retirement system. From The Conversation: Microdata from the Bureau of Statistics survey of income and housing shows an increase in the proportion of homeowners owing money on mortgages across every
By Leith van Onselen In 2018, then Treasurer Scott Morrison made headlines when he claimed Tony Abbott’s proposal to cut Australia’s permanent migrant intake by 80,000 to 110,000 would cost the Federal Budget “$4 billion to $5 billion over the next four years”, arguing “the economy (would not be) growing at the same level and
By Leith van Onselen For years MB has explained why it does not support the proposed $120 billion High Speed Rail (HSR) line linking the major eastern cities of Brisbane, Sydney, Canberra and Melbourne, due to: The exorbitant cost associated with building and operating the rail line; Lack of population density to support the project;
By Leith van Onselen Another report has come to light about how Victorians are being gouged by hidden infrastructure costs: Victorians are paying billions of dollars to a private consortium for a major road [Peninsula Link] that was contracted to be built for just $651 million nine years ago… Treasurer Tim Pallas was roads minister
By Leith van Onselen The Australia Institute (TAI) has released new research estimating that the final stage of the Morrison Government’s unlegislated income tax plan, stage 3(a) will, over the five years after it is introduced in 2024-25, deliver a $33 billion benefit to those earning more than $180,000: Key findings: Those earning more than
There is no private sector growth left, which was nicely pointed out by Greg Jericho: Over the past year government consumption and investment contributed 1.4% points towards total GDP growth of 1.7%. That effectively means government spending accounted of 79% of GDP growth in the past year – a level only marginally below what happened
At the New Daily: Prime Minister Scott Morrison is under pressure to consider gas export limits to bring down power prices under a deal to secure the support of Centre Alliance for his tax cut package. Pensioners are also part of the negotiations, amid concerns seniors get little benefit from the $158 billion package and
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
Poor old Josh Recessionberg, he never expected to win and his cupboard is bare, via the AFR: The federal government is prepared to expand its economic policy agenda beyond the measures it took to the election to boost Australia’s lagging productivity performance, Treasurer Josh Frydenberg says. …”We’re firmly sticking to all our election commitments and
The nightmare is real, says MS, which lowered its Aussie growth outlook to 1.8% today: The other driver of household spending weakness was the savings rate increasing … In our view this reflects the pressures on household de-leveraging, in an environment of low wage growth, elevated debt and falling house prices. This may also limit the
By Leith van Onselen With the Morrison Government likely to hold 35 seats in the new 76 seat Senate, it will likely require the support of only four crossbenchers to pass its controversial income tax cut package. The new Senate is likely to comprise the following 35 coalition MPs; 26 Labor MPs; 9 Greens MPs;
By Leith van Onselen PwC tax partner Paul Abbey has suggested that state governments could progressively phase out stamp duty on residential property sales in favour of a tax regime based on land values. Abbey has proposed that buyers could opt to pay stamp duty immediately or pay an annual transfer duty replacement tax at
By Leith van Onselen Sydney Business Chamber’s western Sydney director, David Borger, has demanded that the federal government contribute a sizeable proportion of the $25 billion needed to build a new metro train line from Central Sydney to Parramatta in the city’s west: “It is the sort of project that we can’t afford to kick the
By Leith van Onselen Back in April, we reported that Sydney’s light rail farce had intensified, with the Spanish subcontractor building the eastern suburbs light rail project – Acciona – demanding an extra $1.2 billion from the NSW Government. This follows the project running a year behind schedule and way over budget, as well as being thoroughly
By Leith van Onselen NSW Treasurer Dominic Perrottet has warned of an additional reduction in stamp duty revenue of between $200 million and $300 million over four years. This follows a mid-year economic review downgrade of $2.5 billion over four years, a $747 million downgrade in March, and a $5.5 billion downgrade in the 2018 Budget. However,
By Leith van Onselen Finance Minister Mathias Cormann has ruled-out splitting the Coalition’s income tax package so that the Senate can pass low-and-middle income tax cuts in isolation to higher income tax cuts. From The Guardian: The finance minister “completely “reject[ed]” the suggestion that the revenue lost from tax cuts would lead to budget deficits
By Leith van Onselen A group of academics have warned that fewer Australians will have university or TAFE skills if governments don’t reform tertiary education. From The Conversation: On current trends, participation rates in tertiary education – which includes university and vocational education training (VET) – will fall over the next decade. A thriving economy depends
Via Ross Gittins today: Morrison, with all his skiting about returning the budget to surplus he may have painted himself – and the economy – into a corner. In a speech last week, Reserve Bank governor Dr Philip Lowe made it clear that cutting interest rates might not be enough to keep the economy growing…And
By Leith van Onselen New Labor leader, Anthony Albanese, is under pressure within the party to oppose the Morrison Government’s high-income tax cuts. From The Canberra Times: Mr Albanese challenged Mr Morrison to recall Parliament before June 30 to pass the first tranche of the tax cuts package, which mostly benefits low and middle income
By Leith van Onselen With stamp duty receipts across Australia tanking, economist Shane Oliver and Property Council chief executive Ken Morrison have both lashed Australia’s state governments for being so reliant on stamp duties, with Shane Oliver urging states to dump stamp duties in exchange for raising the GST or broadening land taxes. From The Australian:
By Leith van Onselen Last month, Victoria’s Premier Daniel Andrews marched with the Change the Rules union rally demanding better pay for Australian workers: The Labor leader joined roughly 100,000 people for the ‘Change the Rules’ demonstration, which began outside Trades Hall in Carlton about 10am and shut down several streets and caused significant disruptions
By Leith van Onselen The NSW Office of State Revenue has released stamp duty data to April, which reveals a massive $1.2 billion (17%) decline over the past year and a $1.6 billion (22%) decline since stamp duty receipts peaked in October 2017: The latest retracement in stamp duty receipts follows a sharp 15% decline
By Leith van Onselen Australia’s soaring energy prices, brought about by the gas gouge, has helped foster a boom in solar power installations across Australia, with one-in-five Australian homes installing rooftop solar. However, alongside this boom has come a proliferation of dodgy installations, with an audit of the Clean Energy Regulator (CER) by the Australian
By Leith van Onselen Sally Capp – the former executive director of the Property Council of Australia’s (PCA) Victorian branch and Melbourne Lord Mayor – has questioned the Victorian Government’s announced increase in the surcharge imposed on foreign buyers of residential property from 7% to 8%. Capp warns that the increase has come at a “critical