Australian budget

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.


Why cutting JobSeeker will push 650,000 into poverty

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


SME loan scheme that doesn’t lend expanded to not lend more

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


The ABC of MMT

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


Morrison Government throws bone to vocational education

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


Business lobby launches suicidal tax cuts pitch

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


Australia’s $90b submarine farce

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


DoleHider accumulates entitlements bomb

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


Victorian Treasurer unveils $6b emergency stimulus package

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


TAFE: the forgotten victim in higher education war

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


Memo to Josh Frydenberg: Tax cuts are the wrong stimulus

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


Tourism and aviation industries demand government support

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


Westpac: Budget outlook collapsing

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 destroys Depressionberg

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 — Katy Gallagher (@SenKatyG) July 2, 2020 Saul Eslake chimed in: The other economist who


Robodebt coming for JobKeeper

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


“Toll mania” fleeces NSW motorists

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,


Frydenberg rules out GST increase

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


ScoMo’s double dip depression is coming

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


Grattan: Give $10b of welfare to temporary visa holders

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