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.
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Prime Minister Scott Morrison has vowed to return the JobSeeker allowance (formerly Newstart) back to $560 a fortnight once the coronavirus lockdown has ended. However, he is facing backlash from some Coalition MPs: While the prime minister has insisted a raft of crisis-related economic support measures will “snap back” to their old arrangements to avoid
Industrial relations lawyer, Daniel Anstey, is the latest to attack the Morrison Government’s JobKeeper program for being a convoluted, bureaucratic mess. In particular, Anstey argues that JobKeeper’s design will create a liquidity crisis for some businesses, which will inevitably mean that many employees will unnecessarily miss out on the scheme. This is because JobKeeper requires
The reform agenda is a joke already, at the AFR: Prime Minister Scott Morrison and Treasurer Josh Frydenberg emphasised on Thursday that the states would have to do their share of the heavy lifting and they re-emphasised the importance of a 2017 Productivity Commission report, Shifting the Dial. “All of these areas need to be
Via The Guardian: “We are all in this together,” prime minister Scott Morrison intoned solemnly to parliament, as he outlined Australia’s response to the global Covid-19 pandemic. “We are charting the road through. We are all in.” Some, however, are more “in” than others. Far from being the great leveller it is asserted to be,
The Morrison Government is reportedly looking to resurrect the Coalition’s failed large company tax cuts, which were scuttled by the Senate in 2018. Yesterday, Treasurer Josh Frydenberg labelled Australia’s company tax rate as “uncompetitively high rate at 30 cents in the dollar” and stated that the Government would “continue to retain an open mind as
Via the AFR: The mining sector is seeking assurances it will continue to receive billions a year in diesel excise rebates as the government starts exploring options to repay debt and deficit in the wake of the coronavirus crisis. Last week, Prime Minister Scott Morrison said policies which stimulated business investment, not higher taxes, were
Courtesy of a Pascometer making perfect sense: A discussion paper on how to most efficiently get Australia working again points to Scott Morrison’s suggested formula of corporate tax cuts, deregulation, and industrial relations reform to be precisely the wrong way to go about the next phase of pandemic recovery. On Friday, the Prime Minister foreshadowed
The pre COVID-19 rebound in Sydney property prices and new mortgages (see next chart) worked work wonders for the New South Wales Budget. According to data from the NSW Office of State Revenue, annual stamp duty receipts in March had rebounded by $560 million (12%) from their August 2019 low: In addition to rising prices,
Think thank Per Capita argues in a new report that concerns over how the federal government’s COVID-19 measures will be paid for are “largely misplaced”. Per Capita contends that the government can essentially roll over its debt indefinitely, so long as Australia’s productive capacity operates to its maximum potential and its economic activity continues. Per
Via the ABC: Reserve Bank governors aren’t typically prone to dramatic flair. Their carefully chosen words usually require skilled interpreters to decipher hidden meanings and messages. When Philip Lowe reflects on the emergence of COVID-19, however, you don’t need to be a central bank analyst to understand how deeply worried the RBA Governor was from
It is understood that Virgin Australia could be placed into voluntary administration within days unless the federal government steps in to save the airline or it can be rescued by the private sector. Former Queensland premier Peter Beattie, who gave Virgin $10 million to base its headquarters in Brisbane in 2000, says the tourism sector
Prime Minister Scott Morrison yesterday pleaded for schools to reopen to allow people to return to work: …it’s alright for some kids and some families that might be able to make the adjustments here, but for vulnerable kids, kids of families whose, both parents are going to work. And if you’ve got a job in
This crisis is moving unbelievably fast. We’ve had our capital markets credit crisis and bailout (to a sufficient extent) via nationalisation all in two months. Next up is the banking crisis that is moving just as quickly. Via ZeroHedge: For many years after the financial crisis, US commercial banks were mocked when instead of generating
The Grattan Institute has released new research showing that Australia’s stimulus response to the Wuhan coronavirus is now the second largest in the developed world behind the United States when measured against GDP: Australia’s announced measures to date represent 9.5 per cent of GDP. At the top of the table is the United States, at
The Morrison Government is believed to be considering additional financial support for the nation’s airlines, to ensure that passenger and freight services continue on essential domestic routes. Virgin Australia CEO Paul Scurrah has been lobbying government ministers and Labor frontbenchers to secure support for a proposed $1.4 billion loan facility for the struggling carrier. Labor
Over the weekend, the ABC presented data showing that the Morrison Government’s coronavirus stimulus package comprehensively dwarfs the Rudd Government’s GFC stimulus: This chart shows two decades of Commonwealth spending (past and forecast), including both stimulus plans… The first stimulus, just over 11 years ago, was Australia’s response to world markets collapsing amid the GFC.
Zero surprise here. S&P is the only one of the three rating agencies that have much of a clue about Aussie sovereign credit: Australia Outlook Revised To Negative As COVID-19 Outbreak Weakens Fiscal Outcomes; ‘AAA/A-1+’ Ratings Affirmed Rating Action On April 8, 2020, S&P Global Ratings revised the outlook on its long-term ratings on Australia to negative
Late last year, the New Daily reported that Australia’s highest ranked public servants were earning between $500,000 and $1 million per year: If you want to see a more comprehensive list of who earns what this official table above gives more detail. If you want to put names to the roles a quick google search
When the Morrison Governments $1500 a fortnight Job Keeper wage subsidy was first announced, I argued that it was far too complicated and contained four key flaws, namely: Inadequate cash flow: JobKeeper requires cash-strapped businesses to pay their employees now (backdated to 1 March) but not receive reimbursement from the ATO until May; Business turnover
While all of the focus has been on the $300 billion of economic stimulus deployed by the federal government – equivalent to some 16% of GDP – it is easy to forget that the state governments have launched stimulus packages of their own. The Grattan Institute has done the sums and found that the states
Virgin Australia Holdings’ CEO Paul Scurrah has warned that the airline industry will require a government bailout if the coronavirus pandemic is not contained quickly. Virgin has approached the federal government regarding the potential for it to provide a $1.4 billion loan facility in the event of a sustained downturn. This would see the government
With the second and third stages of the Morrison Government’s income tax cut package legislated to take effect in 2022 and 2024 respectively, there are now big question marks over whether they can be delivered. For now, the federal government remains committed, with Treasurer Josh Frydenberg claiming that balancing the Budget means Australia is in
Lot’s of ignomious politcking around the flawed JobKeeper program today, at the AFR: With Labor and the ACTU calling publicly for such a wage, arguing that the welfare safety net in the second stimulus or “survival” package was not enough, insiders say Treasury Secretary Steven Kennedy drove the policy at the start. It was worked
Former deputy secretary of the Department of Immigration, Abul Rizvi, has launched a well thought out plan to extend emergency welfare support to the millions of temporary visa holders trapped in Australia without work: The JobKeeper Payment is a massive tourniquet for the Australian economy and society. But for over one million temporary entrants, the
The pre-nationalistion LMI sector has taken its first step towards public ownership, Via Banking Day: QBE has begun notifying home lenders that it has suspended mortgage insurance coverage for new loans taken out by home buyers employed in industries hard hit by the COVID-19 crisis. While the move reflects prudent risk management by the insurer
Over the weekend, Australia’s private hospitals threatened to shut, axing up to 100,000 staff, unless they receive a government bail-out: Australian private and Catholic hospitals are about to be closed and their staff stood down putting 100,000 workers out of a job right as the hospital system is about to buckle under the weight of
Via Westpac: Not for now, but the risks are growing. In the end, it will to a significant degree come down to hard to forecast subjective or qualitative assessments around the sovereign’s risks. • Australia’s AAA S&P sovereign rating will come under renewed surveillance over coming weeks. The heightened uncertainties around the economic impacts of
So, the Fact Sheets on the Morrison Government’s “Job Keeper” $1500 a fortnight wage subsidy have been released and, as expected, they are overly complicated. Fact Sheet for Job Keeper Employers Fact Sheet for Job Keeper Employees For mine, there are four major issues with the scheme’s set up. 1. Inadequate business cash flow: Perhaps
The Murdoch press is truly nation destroying. Let me be a little more specific. Paul Kelly is truly nation destroying. Having grovelled and crawled his way through months of Morrison Government blundering, today he crowns it all with this little gem: The Morrison government has averted a depression in Australia. This is the most momentous
Yesterday afternoon, Prime Minister Scott Morrison and Treasurer Josh Frydenberg officially announced that a $1,500 a fortnight “job keeper” wage subsidy will be paid to businesses to ensure they retain staff. The particulars of the agreement are as follows: The wage subsidy package will cost $130 billion over six months. Six million Australians are expected
