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 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
Via Deloitte: The economy is getting worse, but the Budget’s getting better. That’s unusual: people think politicians drive the Budget, but it’s almost always the economy in the driver’s seat. So it is undeniably bad news that the economy has been taking a few hits since the Budget update was issued ahead of Christmas. It’s hard to pick up a newspaper without getting depressed: global
We are sorry to report that the AFR’s US correspondent has been kidnapped by aliens and felt the cold kiss of a rectal probe today: Australia’s treasurer hunkers on the top floor of his department’s Langton Crescent HQ in Canberra putting final touches on the government’s finances. …The reason? Inflation has reappeared, seemingly out of nowhere
By Leith van Onselen It’s amazing watching Australia’s politicians treat the symptoms of Australia’s third world population growth, rather than addressing the problem at its source by reducing immigration. With the NSW State Election bearing down fast, and the Liberals languishing in the polls, Premier Gladys Berejiklian has announced an uncosted plan to build four
By Leith van Onselen The Australian Tax Office (ATO) commissioner, Chris Jordan, has sounded its annual warning shot at rorting landlords, claiming that 9 out of ten tax claims are wrong. From The AFR: Mr Jordan also revealed new plans to crack down on deductions from the growing rental property market, with almost nine in
Via Bloomie comes Mohamed A. El-Erian on MMT: The current window for the MMT debate has been opened by the protracted period of reliance on unconventional central bank policies that has followed the global financial crisis and the European debt crisis. Despite the initial concerns expressed by some economists, this period of ultra-low interest rates and ballooning
Let’s kick off with David Scutt at BI: The responses in the latest [consumer sentiment] survey indicate that Australians are now more risk averse when it comes to their investment decisions — or scared — than what they were during the height of the GFC. That’s fairly remarkable given Australia just notched up its 28th
By Leith van Onselen Back in September last year, ACCC chairman Rod Sims warned state governments against accepting unsolicited bids for infrastructure projects: “The ACCC considers that state governments should only award new toll road concessions through a competitive bid process, and not following an unsolicited proposal unless there is a truly compelling reason,” Mr
From the good professor today at the AFR: Proponents of an old idea in new clothes – modern monetary theory (MMT) – argue that central banks can solve all these problems by simply buying the large amounts of government debt and increasing the money supply…This can only be described as a classic free lunch. …The
By Leith van Onselen The Committee for Economic Development of Australia (CEDA) has released a new report, entitled Sustainable budgets: underwriting Australia’s social compact, which backs Labor’s policy to limit the refund of excess franking credits, as well as halving the capital gains tax (CGT) discount. Below are the key extracts pertaining to Labor’s policies:
By Leith van Onselen Amid an epic crash in NSW stamp duty receipts, which promises to wipe billions from the State Budget: The NSW Labor opposition has vowed to lift wages for public servants by at least 3%. From The SMH: Amid voter concern over weak income growth and cost of living pressures, Labor’s shadow
By Leith van Onselen The Grattan Institute’s Marion Terrill has trashed the Victorian Government’s announced plans for a $50 billion gigantic rail tunnel loop, claiming the project will not connect workers with jobs. From The Age: Ms Terrill pointed to Australian Bureau of Statistics data showing jobs growth had been slow in suburbs surrounding many of
By Leith van Onselen Hot on the heels of Judith Sloan’s demolition job last week, the Grattan Institute has joined the growing conga-line of analysts shredding Anthony Albanese’s brain fart to build a High Speed Rail (HSR) line linking the east coast capitals. From The ABC: In 2013 the Rudd government put the cost of
By Leith van Onselen Back in June 2016, the ACT Auditor-General released a damning assessment of ACT Light Rail Project – the $710 million project to build a 12-kilometre light rail line connecting Gungahlin in the north and Civic – claiming that the cost-benefit analysis used to support the Project was chock full of erroneous
By Leith van Onselen The idiocy is spreading with the Property Investment Professionals of Australia (PIPA) launching another asinine attack on Labor’s negative geaing policy: Plans to limit negative gearing and slash capital gains tax concessions could cost a Labor government $32 billion in over just 10 years, according to new research from Property Investment
By Leith van Onselen In late 2017, the Victorian Labor Government completed a shady $6.7 billion deal with Transurban to build the West Gate Tunnel Project, which will see Transurban contribute $4.4 billion towards the cost in exchange motorists paying $15 billion in additional tolls on CityLink until 2045. Former Premier Jeff Kennett described the
By Leith van Onselen Robert Carling from the Centre for Independent Studies (CIS) has lashed Labor’s plan to halve the capital gains tax (CGT) discount, labelling it “poor policy”. From The AFR: “Right from the beginning of CGT in 1985, it was accepted that the tax should only apply to real gains – hence indexation
By Leith van Onselen Yesterday we noted how the impending stamp duty bust in Victoria is already crimping public spending, with the Andrews Government forced to tighten its belt ahead of pay negotiations with the public service. Now, State Political Editor for The Age, Noel Towell, reports that Victorian Treasurer, Tim “Ponzi” Pallas, is in
By Leith van Onselen The NSW Pre-Election Budget Update has been released, which has marked down stamp duty receipts in the wake of Sydney’s bursting property bubble. December’s Mid-Year Budget Update projected the following stamp duty receipts: And just three months later, these have been marked down to the following: The below table shows the
Yes, it’s Scummo’s Keynesian boom, via UBS: Public demand boomed again, up 1.6% q/q, adding 0.4% to GDP; saves the day Q4-18 ‘underlying’ public demand volumes surprisingly boomed 1.6% q/q (UBS: 0.0%, ‘headline’ 1.5%) after Q3 spiked 2.4%, the equal biggest 2 quarters since the GFC; & surged ~5.2% y/y. Public consumption lifted (1.8% q/q,
By Leith van Onselen The impending stamp duty bust in Victoria is already crimping public spending, with the Andrews Government forced to tighten its belt ahead of pay negotiations with the public service. From The ABC: Several public sector workplace agreements expire this year with negotiations on many, including for 4,000 paramedics and ambulance support
By Leith van Onselen For years I have felt like a lone voice yelling into the wind decrying politicians’ idiotic plan to build a High Speed Rail (HSR) line linking the east coast capitals. Today, The Australian’s Judith Sloan has lent a hand, noting that HSR has only worked in a handful of countries, and
By Leith van Onselen Some Labor MPs and senators have called for legislative action to discourage Australian companies from sending jobs offshore if Labor wins the upcoming federal election. They argue that jobs should be subject to labour-market testing before companies are allowed to recruit staff overseas. However, Small Business Ombudsman Kate Carnell cautions that
By Leith van Onselen 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
By Leith van Onselen Back in December, the higher education program director at the Grattan Institute, Andrew Norton, warned that Australia’s universities have become dangerously reliant on Chinese students. This warning came after a near doubling of international student arrivals over the past five years: Alongside a ballooning of the international student share at Australia’s universities,
By Leith van Onselen With an election fast approaching, Labor’s infrastructure spokesman, Anthony Albanese, continues to push for a High Speed Rail (HSR) line linking the east coast capitals. From The Canberra Times: Labor’s federal infrastructure spokesman, who oversaw a $20 million study into the feasibility of east coast bullet trains in the previous Labor government,
By Leith van Onselen In late 2017, the Turnbull Government implemented university funding reforms that made it harder for students to access the Higher Education Loan Program (HELP) for courses that have poor employment prospects, thereby effectively ending the demand-driven university system established by the Gillard Labor Government. Now, Labor is seeking to re-establish the
By Leith van Onselen MB has frequently questioned the efficacy of Sydney’s WestConnex toll road and tunnel project – the $17 billion 33 kilometre motorway under construction that is more expensive per kilometre than the Chanel Tunnel. This hideously expensive project will see existing free public roads like the state-owned M4 (that have already been paid
By Leith van Onselen The Morrison Government yesterday approved a $1.4 billion investment into Snowy Hydro 2.0 – a pet project of former Prime Minister Malcolm Turnbull: Early works on the pumped hydro-electricity project will start within a week after Prime Minister Scott Morrison confirmed almost $1.4 billion in equity into making the project a reality…
By Leith van Onselen It was dubbed the “biggest public policy scandal in Australian history: the systematic rorting of the vocational education and training system (VET)”. It was the reckless policy first introduced by the Howard Government and then expanded by the Gillard Government, which gave private VET providers virtually unregulated access to government subsidies for
