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.
Via the ABC comes Opposition finance spokesman Jim Chalmers: “The housing market is softening in some of the major markets, but we don’t make this policy for one market or another or one set of market conditions or another. You make housing policy as a federal government over the medium to long term. One of
By Leith van Onselen Labor has directly linked the Budget savings from its negative gearing and capital gains tax (CGT) reforms with its announced $10 billion package to boost preschool access for three and four-year-olds. From The Australian: From 2021, three-year-olds will get access to 600 hours of subsidised preschool, at a cost of $1.75bn over
By Leith van Onselen In the wake of the massive cost blow-outs and delays hitting both the Parramatta Light Rail Project and the Eastern Suburbs Light Rail Project, the former head of Infrastructure NSW, Paul Broad, in June described the Eastern Suburbs Light Rail Project as a waste of money and a vanity project that should have never been
By Leith van Onselen Tax experts are concerned about the federal government’s proposal to abolish the capital gains tax (CGT) exemption for expatriates who sell their main residence in Australia. They have warned that the proposed reforms could potentially apply retrospectively from 1985, when CGT was introduced. Shadow treasurer Chris Bowen has also expressed concern
By Leith van Onselen I labelled the $22 billion National Disability Insurance Scheme (NDIS) a “bureaucratic nightmare” citing my family’s own personal experience with our 10-year old autistic son. Despite being diagnosed in the “severe range” of autism spectrum disorder, unable to converse or read, and attending a special school, my son was denied funding for
By Leith van Onselen The Morrison Government’s proposed changes to the formula for distributing GST revenue was rejected yesterday by the majority of state treasurers. While the reforms received support from Western Australia’s Treasurer Ben Wyatt, the other state treasurers warned that the federal government must guarantee that no state or territory will be worse
By Leith van Onselen Last year, the federal government implemented a Diverted Profits Tax (DPT), affectionately dubbed the “Google Tax”, which armed the Australian Taxation Office (ATO) with stronger powers to fight multinational tax avoidance. The DPT was budgeted to raise around $100 million in revenue a year from 2018-19. Now, the Morrison Government is
By Leith van Onselen After years of toing and froing, GST on tampons will finally go: The 10 per cent tax on tampons and pads will be removed after states and territories agreed to remove the GST from sanitary products. Treasurers met this morning to discuss the matter and have unanimously agreed to pass the
By Leith van Onselen May’s Federal Budget contained various measures aimed at keeping older Australians in their homes, including: billions of dollars in funding for thousands of extra home-care packages; extending the Pensioner Work Bonus scheme, giving older Australians the ability to earn more money without affecting their benefits; and extending the Pension Loans Scheme
By Leith van Onselen Business Council of Australia (BCA) chief executive, Jennifer Westacott, has attacked Australia’s demand driven university system, causing retaliation from lobby group, Universities Australia. From The Australian: Too many young people are making poor choices about their studies, choosing courses without the prospect of working in the field or earning salaries commensurate
Via The Australian today: Australian Strategic Policy Institute senior analyst Marcus Hellyer has called for the Audit Office to investigate the rollout of the $50 billion project and whether delays in crucial contract negotiations between Defence, French submarine manufacturer Naval Group and weapons system integrator Lockheed Martin will result in extended delays in delivering the
By Leith van Onselen Back in April, it was announced that Western Australia’s per capita share of goods and services tax (GST) would rise from $0.34 in the dollar to $0.47: At the time, the Western Australian Government was unhappy, with Treasurer Ben Wyatt attacking the increase as “yet another slap in the face to the
By Leith van Onselen As predicted, new figures show that the National Disability Insurance Agency’s (NDIA) expenditure on consultants, labour hire firms and outsourced service delivery in 2017-18 totalled about $600 million. From The Australian: The $600m torrent of cash in 2017-18 is in addition to the $4.9 billion spent on direct support for disabled
The egregious vested interest campaign against Labor imputation credit reforms is getting way too much airplay at the AFR: Federal Labor has rubbished a petition being circulated by fund manager Geoff Wilson protesting plans to scrap cash payments for excess franking credits, after 10 opposition MPs, including policy architect and shadow treasurer Chris Bowen, received
By Leith van Onselen This site has gone to great effort exposing the pitfalls of the ACT Light Rail Project. We’ve also scrutinised both the Parramatta Light Rail Project and the Eastern Suburbs Light Rail Project in Sydney, which are facing massive cost blow-outs and delays. Now we’ve got another to add to the list, with the
By Leith van Onselen As predicted last week, the Morrison Government’s pork barrelling of Catholic and independent schools has led to similar funding demands from state schools. From SBS News: The Commonwealth may need to find an extra $7 billion for state schools to secure support for a $4.6 billion peace deal offered to Catholic
The AFR is reporting that Chris Bowen is intent upon higher surpluses: Federal Labor says it will bank revenue windfalls to help insulate the economy against global shocks as it pledges to deliver a better budget outlook should it beat the Coalition at the next election. …”The global economy is in the midst of its
By Leith van Onselen Following the privatisation of Australia’s monopoly land titles platforms by our state governments, Australia’s monopoly electronic property transfer market – Property Exchange Australia (PEXA) – is about to be floated on the sharemarket: [Morgan Stanley] analysts valued the company using a long-term discounted cash flow model with a 9 per cent weighted
By Leith van Onselen Following the massive cost blow-outs and delays hitting the Eastern Suburbs Light Rail Project, as well as multiple reports of incompetence, Miranda Divine believes Light Rail will derail the Berejiklian Government’s bid for re-election. From The Daily Telegraph: If you’re looking for reasons the Berejiklian government is neck and neck with Labor
Via Westpac: • Federal Treasurer Frydenberg released the Budget Outcome for the 2017/18 financial year. • The result exceeded the Government’s forecast in the May 2018 Budget. • The underlying cash deficit for 2017/18 came in at $10.1bn, -0.6% of GDP, some $8.1bn below the forecast of $18.2bn (-1.0% of GDP). • The net operating
By Leith van Onselen Last week it was revealed that the Turnbull Government cynically tried to bribe the Senate cross-bench with a $660 million welfare increase in exchange for them passing the company tax cuts. The irony here is that with the company tax cut package now axed, there is now more money in the
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
Cross-posted from The Conversation: The NSW government has confirmed it will sell 51% of WestConnex — the nation’s biggest road infrastructure project — to a consortium led by Transurban, the nation’s biggest toll road corporation. NSW treasurer Dominic Perrottet described the A$9.3 billion sale to one of his party’s more generous donors as a “very
Is the Budget, via AFR: The Morrison government is sticking to its plan, for now, to reach a budget balance in 2019-20, rather than race to an early surplus. This follows a decision to fund billions in pre-election promises with extra revenue from a growing economy, rather than through spending cuts, which was the original
By Leith van Onselen A group of academics have warned that collapsing rates of home ownership could send government spending on housing assistance soaring. From The Conversation: …falling rates of home ownership – could further increase the demands on the housing system. The HILDA Survey reveals rates of home ownership have fallen from 72% in
By Leith van Onselen The vertical fiscal imbalances plaguing the federation has reared its ugly head again, with Victorian Treasurer, Tim Pallas, demanding billions of dollars in funding from the federal government to cope with unrelenting immigration-driven population growth. From The Age: Victoria is still being short-changed on federal infrastructure funding and Treasurer Josh Frydenberg
By Leith van Onselen It certainly pays to be a senior executive of the Reserve Bank of Australia (RBA). While ordinary Australian workers in the private sector are being put through the wringer: In addition to the number of people employed by the RBA exploding from 800 in 2007 to almost 1,400: Senior executives at
S&P: OVERVIEW • We expect the general government fiscal position to return to surplus by the early 2020s, as the central government’s continued focus on fiscal prudence turns higher revenue collection into better budget performance. We view the government as having significant revenue flexibility to achieve this based on its track record of raising general
By Leith van Onselen The AFR reports that the Coalition is pushing ahead with plans to bring forward previously legislated tax cuts for small and medium businesses with turnover of $50 million or less to 2021-22 from 2026-27, which would cost up to $3.6 billion. Labor opposes a further reduction in the small business tax
By Leith van Onselen Amid the growing controversy over Australia’s pathetically low unemployment benefits, it has been revealed that that the Turnbull Government cynically tried to bribe the Senate cross-bench with a $660 million welfare increase in exchange for them passing the company tax cuts. From The SMH: The Coalition government secretly proposed a $660
