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.
The Business Council of Australia (BCA) has called for the introduction of an investment allowance of 20% for all businesses as part of the nation’s recovery from the COVID-19 pandemic. BCA CEO Jennifer Westacott and board member Alison Watkins argue that about two million new jobs will need to be created, adding that it will
Changes to the JobKeeper and JobSeeker schemes are expected to be announced in the federal government’s economic update. Modelling undertaken by The Australia Institute (TAI) suggests that more than 650,000 Australians would end up below the poverty line if the JobSeeker allowance is returned to its pre-coronavirus level. Some 505,000 people would still be below
Whacko stuff. Friday morning Kouk was in high dudgeon about lack of stimulus: The social and mental health costs of this dismal state of the labour market is huge. The economic costs are similarly large. The good news is the problems can be addressed and with good policy settings, fixed. …Which brings us to the
Straight out of Yes Minister this one: Small employers will be given greater access to a $40 billion loan scheme to help them through the recession when the federal government overhauls its flagship JobKeeper payment this week. The expanded loan scheme will offer companies four times the amounts previously allowed up to a new cap
Nice piece here from Gareth Hutchens at the ABC: We may be on the cusp of a revolution. What if everything we thought we knew about public finance over the past 40 years has been wrong? A new economic theory has emerged that could rewrite our understanding of how governments create and spend money and
From Gareth Aird, head of Australian economics at CBA: Key Points: The July Economic and Fiscal Update(JEFU)is scheduled for release at 9.30am (AEST) 23 July. JEFU should contain a full suite of economic forecasts and the projected fiscal position for the next two years. We expect clarity on what form JobKeeper and JobSeeker will take
The Australian reports that the federal government will today announce a new jobs and skills package that is aimed at younger workers. Amongst other things, the government will spend an additional $1.5 billion over six months on wage subsidies for apprentices. It is estimated that about 100,000 apprentices will benefit from the new package, which
The Australian Chamber of Commerce & Industry (ACCI) has used its pre-budget submission to call for comprehensive tax reform, including bringing forward legislated personal income tax cuts. The ACCI also advocates a gradual reduction in the JobSeeker allowance to pre-COVID levels within six months, while it says the domestic economy will be vulnerable to further
Back in May, the Department of Defence told a Senate estimates hearing that Australia’s new submarine fleet is expected to cost $90 billion, a 12% increase on the previous estimate of $80 billion in November. The Australian’s Robert Gottliebsen has today slammed the submarines program, arguing that the Defence Department has been ‘captured’. According to
Via the AFR: The Morrison government will revamp and extend the JobKeeper program beyond September but struggling business owners are being cautioned to think twice before signing up again because it might send them broke. The small business lobby and the government are aware that workers who have been kept on the books using the
Stupid tax cuts, via The Guardian: There has been some talk that the “stage 2” tax cuts are good because they assist those on low and middle incomes. They do, but the gains from increasing the maximum low-income tax offset, and the 19% personal income tax bracket from $37,000 to $41,000 are all offset by
Victoria has received a grim economic forecast as it heads back into lockdown after the Andrews government reimposed stage three COVID-19 restrictions. State Treasurer Tim Pallas said the unemployment rate was expected to peak at 11% per cent with an extra 270,000 people unemployed after being revised up from 9%. Pallas has also revealed additional
Over recent weeks, we have witnessed incessant lobbying from universities over funding, whereby they have demanded a return to the Gillard Government’s failed demand-driven system: Universities face turning away hundreds of thousands of students next year as applications to study surge but available places remain fixed… Professor of education policy at Melbourne University Frank Larkins
A report from the Organisation for Economic Co-operation & Development (OECD) shows that corporate tax accounted for about 5.5% of Australia’s GDP in 2017. This compares with an average of 3% across all OECD member nations. The US and the Bahamas are among 15 jurisdictions whose corporate tax collections comprise less than 2% cent of
Yesterday, Treasurer Josh Frydenberg flagged that he would bring forward legislated tax cuts to simulate the economy: Personal income tax cuts for middle income earners worth up to $2565-a-year are likely to be brought forward to help boost spending, the Treasurer Josh Frydenberg has revealed… “There are three stages to those legislated income tax cuts
Business leaders and unions are demanding urgent support for the tourism and aviation sectors after government data revealed the industry lost almost $6 billion in three months during the pandemic. International tourism spending was down almost $4 billion or more than 27% for the March quarter compared with the same time last year. The greatest
Via Bill Evans and Andrew Hanlan at Westpac: We have now revised our estimates of the Federal budget deficits for 2019/20 and 2020/21 to $95bn (4.8% of GDP) and $230bn (11.7% of GDP) respectively, amended from $80bn and $170bn. The lift in the estimated deficit for 2019/20 is due to an upward revision to the
Richard Denniss is one of Australia’s best economists. This little video captures everything that was wrong with Josh Depressionberg’s economy coming into the crisis: The Australian economy entered this pandemic from a position of weakness not strength @AustraliaInstitute #covidcommittee pic.twitter.com/ybKCzCBEYN — Katy Gallagher (@SenKatyG) July 2, 2020 Saul Eslake chimed in: The other economist who
At The Guardian: The government has told more than 8,000 small business owners they may have to pay back jobkeeper payments they have relied on for income throughout the coronavirus pandemic, after a crackdown on compliance for the wage subsidy scheme. The Australian Taxation Office has confirmed the “compliance” checking procedure revealed by Guardian Australia
Following a 10 year rollout, this week (30 June) marked the scheduled end of construction on the National Broadband Network (NBN). In reality, there are still several thousands of homes that remain unconnected. Those aside, construction is more or less complete. While opinions vary on whether the NBN has hit its mark, there is no
Let’s retire this debate and the endless word-games. A Job Guarantee (JG) is a way to guarantee a certain income level to anyone willing to do tasks that some administrator decides are good. A Universal Basic Income (UBI) is a way to guarantee a certain income level to anyone willing to do any task they decide
It’s “toll mania” with Sydney motorists facing more hefty charges from this weekend, with drivers on the new M8 tunnel facing tolls of $6.95 per trip, and the existing M5 East costing $6.95 per trip for the first time. As we know, Sydney’s toll road network is the most expensive and extensive in the world,
Amid calls from the NSW Government for tax reform, Treasurer Josh Frydenberg this morning ruled out raising the GST, instead preaching tax cuts. Here’s what Frydenberg told Sky News: “Our focus is on getting people back to work. Our focus is in ensuring the economy opens up. And that’s why we are doing the review
The New South Wales Government’s review of federal financial relations has proposed a range of tax reforms, which include increasing the GST or broadening its scope. The expert panel has also proposed giving NSW residents the option of making a one-off stamp duty payment when they buy a new home or paying land tax every
The original 2011 Gonski report was designed to clean up Australia’s opaque and convoluted system of school funding, as well as establish a new needs-based funding model. This was to be achieved by introducing a “base rate” level of funding per student, known as the Schooling Resource Standard (SRS), with extra loadings on top based
Via Damien Boey at Credit Suisse: Loan demand could stabilise, but … New loan approvals are falling in trend terms, foreshadowing weaker growth in the stock of credit in the near term as the back-book of loans catches down to deteriorating flows. However interestingly, our proprietary credit conditions index, which takes into account banks’ willingness to make high loan-to-value ratio
What a classic Hugh Hendry is: Searing insights from the wild man of finance reminds me of Samuel Taylor Coleridge: A damsel with a dulcimer In a vision once I saw: It was an Abyssinian maid And on her dulcimer she played, Singing of Mount Abora. Could I revive within me Her symphony and song,
The Grattan Institute has released a new report urging the federal government to inject $70 billion to $90 billion of additional stimulus into the economy in order to boost growth and soak up the unemployed: Over the past three months, the Federal Government has announced an unprecedented fiscal injection of $136 billion (about 7 per
Nice poddy here on Stephanie Kelton’s new book The Deficit Myth: Good job.
Last year, ABC News reported that Sydney’s toll road network is the most expensive and extensive in the world: …transport experts have given the city the dubious honour of having the most extensive — and expensive — urban toll road network in the world. Sydney has nine toll roads that include a total of 15
