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.


As federal debt passes $500b, why won’t RBA kill the CLF?

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,


Elite unis should take a hard look in the mirror

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


Lift in pension age to miss baby boomers

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


Labor bastardises its own Gonski reforms

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


Beware infrastructure financial alchemy

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


Morrison’s acid Budget turns bad trip in 28 days

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


Would Labor’s tax rise plan crush incentive?

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


A new area of services rorting emerges

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


S&P is setting the scene to downgrade Australia

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


Australia’s failing demand-driven uni system

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


Everyone in WA will have to pay

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


The blowout in welfare spending is a myth

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


Infrastructure Australia: Privatise public transport

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


Labor’s bank levy pedantry drags into fourth day

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


How to make the retirement system sustainable

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


Morrison defends Budget’s wages growth unicorn

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