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.


ATO targets multinational tax avoidance

By Leith van Onselen In July last year, ABC’s The Business and Michael West featured an extraordinary raft of allegations from a 32-year veteran industry insider turned whistleblower, George Rozvany, who claimed that multinational tax avoidance was “out of control” and cost the Budget up to $50 billion dollars a year in lost revenue. Rozvany claimed


Falling home ownership creates headaches for retirement system

By Leith van Onselen On Friday afternoon, The AFR posted a series of articles warning that the collapsing rates of home ownership among younger cohorts could ultimately cripple Australia’s retirement system. Consider first, the below article by Sally Patten and Jacob Greber: A steady slide in home-ownership rates is building up a fresh demographic headache


A ‘carbon tax’ on cars makes sense if done properly

By Leith van Onselen Environment Minister, Josh Frydenberg, has moved quickly to hose down reports the government is planning to introduce a new “carbon tax” on cars that will see the price of some popular vehicles soar by up to $5000. From The Canberra Times: The Department of Infrastructure and Regional Development has released proposed


ATO fails to plug wealthy tax loophole

By Leith van Onselen Last week it was revealed in The Australian that a draft tax ruling issued by the Australian Taxation Office (ATO) in March 2017 could allow “passive” family investment companies to claim tax refunds and deductions, opening the door for wealthy families to claim back hundreds of millions of dollars in tax


Cigarette giant ordered to pay costs in plain packaging case

By Leith van Onselen In 2012, tobacco giant Philip Morris launched legal action against Australia’s plain packaging cigarette laws, seeking financial compensation for lost sales and profits under an investor-state dispute settlement (ISDS) clause contained in an obscure investment agreement with Hong Kong. Here’s the Productivity Commission’s explanation of this action via its Trade and


H&R Block defends tax rorting

By Leith van Onselen Earlier this week, Australian Tax Office (ATO) Commissioner, Chris Jordan, announced a crackdown on tax returns by individuals, noting that some 6.3 million people – or roughly half of workers – make claims for expenses relating to clothing or laundry when they have no right to do so. Mark Chapman –


ATO targets negative gearing tax dodgers

And pretty much everyone else as well, from Tax Commissioner Jordan: In his Wednesday address, Mr Jordan said approximately 6.3 million Australians claimed a $150 tax deduction for clothing expenses, totalling $1.8 billion. He questioned whether people knew they were not simply entitled to it. “That would mean that almost half of the individual taxpayer


Retail sector taps youth slaves

By Leith van Onselen The Turnbull Government announced on Monday that it would expand its controversial Youth-Jobs PaTH program – to prepare, trial and ultimately hire young Australians – into the retail sector, which has driven a strong push-back from the union movement, Labor and The Greens. From 9News: Up to 10,000 internships will be


New month, new rort

By Leith van Onselen It has been revealed that the Federal Government’s self-assessed Research and Development (R&D) Tax Incentive scheme, which provides tax rebates of up to 43.5% for companies that invest in R&D, has been exploited by fraudsters, former bankrupts and other dubious individuals. From The Canberra Times: The Research and Development (R&D) Tax


Infrastructure Australia warned on rail privatisation

By Leith van Onselen In late May, Infrastructure Australia (IA) called on state governments to privatise their public transport networks, claiming privatisation could save taxpayers $15.5 billion by 2040. From The AFR: Philip Davies, Infrastructure Australia’s chief executive, said Australia’s transport systems needed to continue expanding to keep up with population growth and governments could


Andrew Robb exposed in VET rort

By Leith van Onselen Back in May, thousands of students were left in limbo as one of the biggest vocational educational training (VET) providers, Careers Australia, went into administration after losing government accreditation and funding. From the Jakarta Globe: Careers Australia Group, a provider of vocational education and training, has gone into voluntary administration after


Turnbull government to invest extra $500m in Victorian rail

By Leith van Onselen Amid anger within Victoria over the lack of infrastructure funding from Canberra, the Turnbull Government this morning announced that it would provide an additional $500 million in funding for Victoria’s regional rail network. From The Australian: Prime Minister Malcolm Turnbull this morning pledged an extra $500 million of federal funds in


Falling home ownership creates ageing time bomb

By Leith van Onselen The Grattan Institute’s John Daley last week gave a presentation to the Council of The Ageing conference on Housing for Senior Australians, whereby he noted that senior Australians generally face less housing pressures than younger Australians, but that the situation is likely to deteriorate from the 2030s due to falling home


The politico-housing complex devours itself

The MSM bank protection racket is in full swing, at the AFR: London-based investors have warned National Australia Bank chief executive Andrew Thorburn that they consider Australia a less stable and less consistent economy for investment after the South Australian budget hit the big four banks and Macquarie with a surprise $370 million tax. Speaking


Labor vows to undo Gonski 2.0

By Leith van Onselen Just days after the Australian Senate cross-bench voted with the Government to pass its $23.5 billion ‘Gonski 2.0″ needs-based schools funding bill, the Labor Party has vowed to restore the prior Gonski model should it win the next federal election. From The Guardian: Tanya Plibersek has promised Labor will restore every


Academic goose squawks on bank tax

From Dick Holden professor of economics at UNSW Sydney Business School via AFR: We are now through the looking glass on company taxation. We have industry-specific taxes based simply on which companies are profitable and what focus groups think about those companies. This is terrible tax policy. Though all taxes are distortionary, the primary goal of sound


Gonski onski as Senate passes bill

By Leith van Onselen It’s now official. The Senate last night voted 34-31 in favour of the Turnbull Government’s schools funding package. It follows two days of parliamentary debate over the package, which the Government agreed to increase from $18.5 billion to $23.5 billion in order to gain the support of Senate crossbenchers. The first


Replacing stamp duties with land taxes would lower house prices

By Leith van Onselen Retired economics professor, Peter Abelson, is the latest to call for stamp duties to be replaced by land taxes, arguing that such a reform could assist housing affordability. From Adam Creighton: Large increases in housing supply would have only a “small” impact on Sydney house prices, according to analysis commissioned by


Gonski 2.0 set to pass after Coalition finds a way

By Leith van Onselen The Turnbull Government has achieved another win, gaining the support of the 10-member Senate cross-bench for its Gonski-2.0 needs-based funding school model. From The Canberra Times: An extra $24 billion is set to flow into the nation’s schools over the next decade under a landmark deal struck between the Turnbull government


Pressure builds on Labor to back Gonski 2.0

By Leith van Onselen Earlier this month it was the Grattan Institute that urged Australia’s politicians to back the Coalition’s Gonski 2.0 needs-based school funding package, with Grattan contending that the lion’s share of the extra $22 billion that Labor promised to spend at the 2016 election would represent wasteful investment that would not deliver