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 A university degree in Australia used to mean something. It used to be that to gain entry to a decent course at a decent institution, students were required to work hard at school and gain a tertiary entrance score above a high threshold. Those days are long gone. Thanks to the
By Leith van Onselen Fairfax has posted an interesting article on the blow-out in Federal Government debt, which is about to pass $500 billion: The Turnbull government will break through the country’s former debt ceiling this week, breaching the $500 billion mark as it doubles the credit card bill it inherited from Labor. On Tuesday,
By Leith van Onselen The immigration-driven population boom in Sydney – which has added 830,000 people (20%) to Sydney’s population over the past 12 years and is projected to increase Sydney’s population by 87,000 people a year (1.74 million in total) over the next 20 years – is the gift that keeps on giving. Back
By Leith van Onselen The prestigious Group of Eight (Go8) universities have launched a stinging attack on the Turnbull Government’s “fatally flawed” university funding reforms. From The Canberra Times: The Turnbull government has introduced legislation to increase university fees by 7.5 per cent, slash the HECS repayment threshold to $42,000 and cut teaching grants through
By Leith van Onselen Social Services Minister, Christian Porter, has confirmed that the Coalition is still seeking to lift the age for accessing the Aged Pension from 67 to 70, but that the changes would conveniently miss the large, rich and powerful baby boomer generation. From SBS News [My emphasis]: Social Services Minister Christian Porter
By Leith van Onselen The Turbull Government and Labor continue to bicker over the funding of schools, and whose spending plans are closer to the original intent of the Gonski needs-based funding model. Analysis suggests that the Coalition’s funding package is essentially what Gonski had in mind, with Peter Goss of the Grattan Institute contending
Cross-posted from The Conversation: No sooner is one complicated financing idea from the government batted down, than another one pops up. We can expect more of them, now that the federal budget has established a new Infrastructure and Project Financing Agency. We’ll get “innovative” financing options for everything from the massive Inland Rail project, down
By Leith van Onselen Modelling by the Australian National University’s (ANU) Ben Phillips suggests that middle-income earners – those earning $1,600 in average gross income – will make the biggest contribution to reducing the Budget deficit over the period to 2020. The ANU contends this group will see their income fall by 3.8% over this
Apparently our Scott is concerned, from The Australian: Scott Morrison conceded risks to the government’s “growth story” in a major speech yesterday, just hours before a leading economist predicted a cocktail of sluggish wages and stagnant business investment could push Australia into recession within months. Speaking at an economic forum in Canberra yesterday, the Treasurer said
From The West: The State Government is facing a $350 million blow to its already struggling Budget as the price of iron ore plummets, forcing Treasurer Ben Wyatt to look for even more savings. Ahead of a surprise visit to WA today by Federal Labor leader Bill Shorten that will be dominated by talks about
By Leith van Onselen Ross Gittins has continued his stellar form of late with a great piece on the lobbying that has infested the nation’s capital: You and I don’t expect to be consulted before governments announce their policy decisions, so what gives these people [lobbyists] the right to special treatment? Well, I’ll tell you:
By Leith van Onselen Prime Minister Malcolm Turnbull will address the Committee for Economic Development of Australia summit today, whereby he will reportedly argue against Labor’s push to retain the temporary deficit levy – which would result in the highest marginal tax rate remaining at 49.5% – by claiming that it would deter people from
Cross-posted from The Conversation: In this year’s budget papers, Treasury estimated that the bank levy will collect about A$1.5 billion in each of the next four years for the government. But this is actually a conservative estimate. Labor has argued there will be a A$2 billion dollar hole in the bank tax revenue. This is
By Leith van Onselen Hot on the heels of widespread rorting by private Vocational Education and Training (VET) providers, the Federal Government has uncovered alarming levels of fraud within the family daycare sector. Fraud to the value of $60 million within the sector has already been detected, and it is expected that this amount will
Yesterday S&P released a new report comparing Australia and Canada, explaining why it see the former as a much weaker AAA sovereign than the latter. Strong Institutions And Governance Effectiveness We consider Australia and Canada’s institutional arrangements and governance effectiveness to be key strengths. Both countries are federal parliamentary democracies supported by strong institutions and the
By Leith van Onselen Fairfax’s Ross Gittins penned an excellent article yesterday on the inefficiencies of Australia’s demand-driven university system, which is churning out way too many graduates, costing the Budget a fortune, and leading to bloated bureaucracies: In an ideal world we’d be investing more in our universities, but our world is far from
All so very predictable: BHP Billiton and Rio Tinto will seek clarification about the future of iron ore taxes in meetings with the West Australian government over the next 48 hours, after premier Mark McGowan softened his stance on extracting “billions of dollars” from the miners on Monday. Just days after flagging his desire for
By Leith van Onselen For several years, The Australian has run a campaign against the so-called ‘blowout’ in welfare spending, backing claims made by the Coalition that nearly half of the population receives more in welfare than they pay in tax. Today, David Uren reports that the “welfare tide” is turning, with the percentage of
Because they just can’t last when the weather turns nasty. For mining, via the AFR: Iron ore giants BHP Billiton and Rio Tinto are facing a fresh tax grab in Western Australia just months after seeing off the WA Nationals’ concerted push to slap the miners with a tax hike that would have cost them
By Leith van Onselen Infrastructure Australia (IA) has called on state governments to privatise their public transport networks, which IA claims could save taxpayers $15.5 billion by 2040. From The AFR: Handing operation of all of Australia’s public bus and rail systems over to the private sector could save state governments as much as $15.5
By Leith van Onselen Labor’s pedantry over the Coalition’s 0.06% levy on the big banks’ liabilities rolled on for a fourth day yesterday when it once again used Question Time to discredit the Budget’s forecasts that the bank levy would raise $6.2 billion over the forward estimates. Once again, The Guardian’s politics blog summarised Labor’s
Cross-posted from The Conversation: Our current retirement system is simply not sustainable, as our population ages and life expectancy increases. Australia incentivises people to structure their finances so they are asset rich and cash poor. They are then able to claim the pension and can leave an inheritance, which is in part paid for by
By Leith van Onselen Greens senator, Peter Whish-Wilson, gave an excellent extended interview on ABC’s The Business last night (extract above), whereby he made a strong case for the bank levy to be raised from its current proposed level of 0.06%: “The most important issue is that we get a good levy in place so
By Leith van Onselen Behold, once again, Scott Morrison’s Budget fantasy that Australian wages growth will miraculously boom over the next four years to levels not seen since the once-in-a-century mining investment and commodity price boom (forecast in green): Last night, Scott Morrison defended the Budget’s wages unicorn in a speech given to the Australian
By Leith van Onselen Labor’s pedantry over the Coalition’s 0.06% levy on the big banks’ liabilities rolled on for a third day yesterday when it once again used Question Time to discredit the Budget’s forecasts that the bank levy would raise $6.2 billion over the forward estimates. The Guardian’s politics blog once again broke-down Labor’s
