By Leith van Onselen I have previously claimed that Australia’s private health insurance system is facing a ‘death spiral’ as young and healthy people (the so-called “invincibles”) continue to leave system, thus leaving a larger proportion of unhealthier, older, expensive users. If this process continues, it will force premium up further, leading to a further exodus
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 Last week, a Coalition-led parliamentary inquiry into Labor’s dividend imputation policy began public hearings, which heard a conga-line of vested interests bemoan that Labor’s proposed reforms are “unfair” and would smash “ordinary Australians” and “lower-end retirees”. However, this special pleading has already been debunked by the Parliamentary Budget Office (PBO), which released
Via the AFR: The Morrison government is planning an early federal budget next year, all but confirming its intention to go full term and call the election for May. Budgets are typically held in the second Tuesday of May but the election must be held by mid-May, meaning the traditional budget date would clash with
By Leith van Onselen It appears that private schools are rapidly morphing into public schools, given the large amount of public funding they receive, according to a new report published by The ABC. That is, if a private school is defined by who pays, then they are rapidly becoming public: Average figures tell us Catholic
By Leith van Onselen Back in September, 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 Sims said.
By Leith van Onselen The Grattan Institute’s transport program director, Marion Terrill, has ripped into the “astronomical” transport promises made in the lead-up to the Victorian Election, especially by Labor: There’s nothing unusual about politicians promising big-ticket items to curry favour with voters, but this election the size of these commitments is astronomical: more than $170 billion
By Leith van Onselen In February this year, a former Department of Defence and Business Council of Australia boss labelled the federal government’s consultancy spend “stupendous” and claimed that much of the $130 billion in federal government external spending should have been carried out by permanent public servants. And in August, the Joint Committee of
By Leith van Onselen The AFR has released the below chart showing the extraordinary Budget luck that has been bestowed on Victorian Treasurer, Tim “Ponzi” Pallas, who has enjoyed an $8.6 billion (14%) upwards revision in revenues since he crafted his first Budget in 2015: This has resulted in Ponzi Pallas having “23 per cent
By Leith van Onselen The federal government’s net debt was $342 billion at the end of 2017-18, which equates to 18.6% of GDP. While this is relatively low compared with many nations, Treasury secretary Philip Gaetjens yesterday warned in a speech marking the 10 year anniversary of the global financial crisis (GFC) that debt needs
By Leith van Onselen In light of the long delays and massive infrastructure cost blow-outs plaguing Premier Gladys Berejiklian in the lead-up to next year’s state election, which comes on top of the football stadiums fiasco, NSW Labor Opposition leader, Michael Daley, has pledged public scrutiny for projects worth more than $1 billion. From The
By Leith van Onselen Victorian Treasurer Tim (“Ponzi”) Pallas has $80 billion worth of projects covering hospitals, schools and transport in the pipeline if Labor is re-elected this weekend. Ponzi Pallas is hopeful that the current downturn in the Victorian housing market will only last 12 months, because any sustained decline would very likely push the
By Leith van Onselen In recent times, a veritable conga-line of groups, representing a huge cross-section of society, have called for the federal government to lift Australia’s pathetically low Newstart Allowance for the unemployed (aka ‘Dole’), including: Deloitte Access Economics senior partner Chris Richardson; the Business Council of Australia; Former Treasury Secretary, Ken Henry; Professor
The Australian rightly questions the Frydenberg bank bailout today, at The Australian: Several Liberal MPs were critical of the measures because of the increased government intervention. “I remember the Kevin Rudd bank for infrastructure and how much it was ridiculed,” one MP said on the basis of anonymity. “My views don’t change radically because it
Via the AFR comes $2bn for small business from Amateur Treasurer Josh Frydenberg: The creation of a taxpayer-backed securitisation fund to invest in small and medium enterprise (SME) credit will also potentially expand an asset class for institutional investors such as superannuation funds to invest in. Treasurer Josh Frydenberg and Small Business Minister Michaelia Cash
By Leith van Onselen Yesterday, we attacked the Morrison Government’s plan to halve funding to charity Foodbank, which provides meals to 710,000 needy Australians. Thankfully we can today report that the community backlash has forced the Coalition to backflip: The National Farmers’ Federation, the community sector and Labor yesterday slammed the Government’s plans to slash
By Leith van Onselen It’s become clear that the Morrison Government’s moral compass has broken with its decision to halve funding to charity Foodbank, which provides meals to 710,000 needy Australians: Foodbank says funding for its Key Staples program, which makes sure essential supplies like rice, bread and vegetables get to hungry people, will drop
By Leith van Onselen Back in January, Labor leader Bill Shorten gave a speech to the Press Club claiming Australia’s private health insurance industry is “treating Australians like mugs” and “gouging people on the basis of a con”. Labor also flagged that it would cap health insurance premium increases at 2% per annum. Now, with Labor
By Leith van Onselen NBN Co CEO, Bill Morrow, last year warned that Australia’s National Broadband Network (NBN) faces damaging competition from the upcoming 5G network, and called for a levy on mobile broadband services to ensure the NBN makes a profit. Thankfully, this special pleading was rejected outright by former Prime Minister Malcolm Turnbull. Speaking at
By Leith van Onselen Australia’s Property Council Prime Minister, Scott Morrison, has launched a new front in his fight against Labor’s negative gearing policy: claiming that it would lose Australia its prized sovereign AAA credit rating. From The AFR: Prime Minister Scott Morrison claimed on Thursday Labor’s policy would crash the country’s AAA credit rating as
By Leith van Onselen Following the Productivity Commission’s attack last week, the Business Council of Australia (BCA) chief executive, Jennifer Westacott, has lambasted Australia’s universities, slamming their opposition to levelling the playing field and removing the distortions pushing students into universities over vocational education and training (VET). From The AFR: Ms Westacott told a group
By Leith van Onselen The Grattan Institute has released a new report, entitled Money in retirement: more than enough, which challenges the conventional view that Australians don’t save enough for retirement, and explicitly recommends against lifting the compulsory superannuation guarantee from its current level of 9.5% to 12%: The vast majority of retirees today and in
By Leith van Onselen MB has frequently questioned the merits of government policy that forces Australians into private health insurance, and argued that diverting subsidies away from private health insurance into the public system would lead to more efficient health outcomes. We’ve also warned that Australia’s private health insurance system is facing a ‘death spiral’,
By Phil Soos, cross-posted from Independent Australia: The Government has prioritised economically supporting the fossil fuels industry instead of tackling urgent climate change issues, writes Philip Soos. AUSTRALIA’S CLIMATE CHANGE culture war is a hideous spectacle. Despite the obvious reality of human-caused climate change and the urgent need to act, the powerful fossil fuels industry (FFI)
By Leith van Onselen Yesterday morning, we argued that the Andrews Labor Government “has set Victorians up for a Budget emergency” due to the exorbitant pay increases granted to public servants, which is about to run head first into crashing stamp duty receipts on the back of falling dwelling values and crashing prices: Yesterday evening,
By Leith van Onselen Back in 2000, former Treasurer, Peter Costello, made the fateful decision to allow the conversion of franking credits into cash refunds for shareholders. This enabled tax-free (mostly wealthy) superannuation holders over the age of 60 to claim imputation credits even though they pay no tax, as explained by The Australia Institute:
By Leith van Onselen With stamp duty receipts already collapsing: Amid falling dwelling prices and crashing transaction volumes: The NSW Government is planning to index stamp duty thresholds to the consumer price index (CPI): Under the changes the seven price bands, or brackets, which determine how much stamp duty is paid by home purchasers will
By Leith van Onselen Throughout the Victorian Labor Government’s term, we have witnessed outrageous pay claims from various quarters, including: a 14% pay rise over three years for Metro Train workers (including a 3% sign-on bonus), which took the average salary of train driver to $143,600 (plus superannuation) and a ticket inspector or station officer to
By Leith van Onselen KPMG has released alarming analysis showing that Australia’s infrastructure investment binge is failing to keep pace with the nation’s manic immigration-driven population growth, with 3.5% growth in public spending on infrastructure required just to cover depreciation and population growth: KPMG chief economist Brendan Rynne said just “to stand still” Australia needs
By Leith van Onselen The Productivity Commission’s (PC) deputy chair, Karen Chester, has questioned the merits of Australia’s demand driven university system and says the agency will investigate whether the policy of uncapped university enrolments is resulting in working effectively and delivering graduates who are not sufficiently prepared for the workforce. From The Australian: Karen Chester
By Leith van Onselen Former Treasurer, Peter Costello, has re-written history once again, slamming both sides of politics for not doing enough to reduce government debt, while ignoring that policy decisions made when he was Treasurer are largely responsible for placing the Federal Budget in its current predicament. From The Australian: Writing of his time as