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.


Senate passes Budget’s better housing reforms

By Leith van Onselen The May Budget included the below measure to tax foreign owners that leave their properties vacant: The Budget also included measures aimed at limiting the deductions that can be claimed by property investors: Yesterday, these measures passed the Senate with Labor support: Summary Introduced with the Foreign Acquisitions and Takeovers Fees


SA folds on bank levy

By Leith van Onselen Just in via The Australian: The South Australian government has abandoned its controversial bank tax. Premier Jay Weatherill says the levy, designed to raise $360 million from the big banks over the next four years, has no prospect of being passed in state parliament. “For all intents and purposes, the bank


As older Australians’ wealth skyrockets, renting pensioners do it tough

By Leith van Onselen Although older Australians have captured an increasing share of Australia’s wealth: Largely because they have increased their home ownership rates over the past 55 years at the same time as home values have skyrocketed: The situation is nowhere near as rosy for Australia’s renting pensioners, who are doing it tough according


How to encourage seniors to downsize

By Leith van Onselen The May Budget included the below measure aimed at encouraging seniors to downsize from their large homes to free-up housing for Australian families: Now, The AFR has run an article on the financial pitfalls involved with seniors downsizing: Australia’s property market could get an unexpected volume boost from the middle of


ACCC too late the hero on NBN

Cross-posted from The Conversation: The Australian Competition and Consumer Commission (ACCC) has launched a public inquiry into the National Broadband Network (NBN). Already, Telstra and Optus have come forward, offering to compensate customers whose expectations of internet speed delivery were not met. But it’s four years too late. The ACCC dropped the ball when it


Federal government to target dud university degrees

By Leith van Onselen With HELP bad debts currently standing at around $50 billion, the federal Education Department will work with the Australian Taxation Office (ATO) on matching tertiary courses with income and employment outcomes. The stated intent is for this information to help assist prospective students with course choices. However, Andrew Norton of the


Should Australia end dividend imputation to fund company tax cuts?

By Leith van Onselen The AFR has published an interesting article canvassing ending (or reducing) Australia’s unique dividend imputation system to fund company tax cuts: …abolishing dividend imputation entirely… would generate $11.1 billion a year at the 30 per cent rate. But that would be howled down by investors, who would lose credits for tax


Deloitte hoses ScoMo’s delusional Budget

Via Chris Richardson at Deloitte: Understanding the official forecasts (and how they pull a rabbit out of their hat) The official forecasts in the 2017-18 Budget released in May aren’t at all well understood.  They say that 3% of national income ($50 billion a year) will go from families and businessesinto Canberra’s coffers over the


Coalition’s FHB super bribe to be shot down by Senate

By Leith van Onselen The Turnbull Government’s desperate attempt to keep the East Coast property bubble going has hit a snag with the Senate looking as if it will vote down the Government’s legislation to allow first-home buyers (FHBs) to use up to $30,000 of voluntary super contributions for a housing deposit. From The Canberra


Australia’s company tax rate highest in the world? Not really

By Leith van Onselen Always the corporate mouth piece, The Australian’s David Uren has penned an article today claiming that Australia’s corporate tax rate will soon be the highest in the world: US company tax cuts will accelerate the slide in global business tax rates, ­leaving Australia stranded with the highest company rate in the


$17 billion WestConnex dud to worsen inner-west Sydney traffic congestion

By Leith van Onselen I have noted repeatedly that one of the key reasons why Australia’s high population growth (immigration) is lowering the living standards of existing residents is because of the strain that it places on infrastructure, which inevitably leads to more congestion on roads, public transport, as well as more expensive housing. Basic


ATO targets 19 multinationals for tax avoidance

By Leith van Onselen Some 13.4 million records from Bermudan law firm Appleby have been leaked to the international press, with records covering the period from 1950 to 2016. And this leak, dubbed the “Paradise Papers”, has implicated several multinational corporations in tax avoidance, prompting the Australian Tax Office (ATO) to take action. From The


Navigating the stamp duty to land tax mine field

By Leith van Onselen After last week’s Productivity Commission (PC) report included a recommendation for the states to shift from stamp duty to land taxes, and the property lobby endorsed the idea, attention has turned to how the reform could be implemented in practice. Kevin Davis, research director of the Australian Centre of Financial Studies,


Stars aligning for stamp duty land tax switch

By Leith van Onselen Last week’s Productivity Commission (PC) report, entitled Shifting the Dial: 5 year productivity review, included a recommendation for the states to shift from stamp duty to land taxes: Recommendation 4.8 Remove stamp duties and implement transition to land tax State and Territory Governments should move from stamp duties on residential and


Another ‘flagship’ Coalition employment program fails

By Leith van Onselen After butchering its ‘flagship’ $750 million Youth-Jobs PaTH program – to prepare, trial and ultimately hire young Australians – another ‘flagship’ Turnbull Government employment program has failed. From The Australian: The Coalition’s flagship $7.3 billion employment services program has been branded a “hopeless mess” with fewer than 40 per cent of


University professor hits out at falling university standards

By Leith van Onselen In the wake of the Productivity Commission’s latest Shifting the Dial productivity review report, Griffith University economics professor, Ross Guest, has joined the chorus lambasting the dilution of Australian university standards and the weakening of jobs prospects for graduates. From The AFR: Ross Guest agreed universities were overly focused on research and


Further ABS cuts to blind economy

By Leith van Onselen It is Groundhog Day at the Australian Bureau of Statistics (ABS). The organisation has already been savaged by funding cuts and jobs losses under the prior two governments (both Labor and Liberal), thus hampering its ability to perform its functions. Now, the ABS’ Forward Work Program 2017-18 foreshadows another 500 job


The war state treasurers should be waging

By Leith van Onselen New South Wales Treasurer Dominic Perrottet has proposed the creation of a new body to be called the “Board of Treasurers”, which would comprise treasurers from the eight states and territories, but would exclude the federal treasurer. Its proposed creation comes at a time when some states and territories are becoming


With car industry gone, it’s time to eliminate tariffs

By Leith van Onselen Senator Cory Bernardi has called on the Federal Government to abolish tariffs on imported cars, following the closure of the Australian car industry. Bernardi estimates that the Government is collecting upwards of $1 billion in levies from new-car buyers each year. However, Senator Nick Xenophon believes there is merit in retaining


Parental visas punch big hole in Budget

By Leith van Onselen The Productivity Commission’s (PC) Migrant Intake Australia report, released last year, recommended significantly tightening parental visas and raising their price, given they are costing taxpayers an estimated $335 000 to $410 000 per adult, or between $2.6 and $3.2 billion per annual intake in present value terms (and growing): There is


PC takes aim at Australia’s dysfunctional federation

By Leith van Onselen The Productivity Commission’s (PC) latest report, entitled Shifting the Dial: 5 year productivity review, contains a section analysing the vertical fiscal imbalances (VFI) dogging the federation, while advocating giving the states greater power to raise revenue for the provision of government services instead of being so reliant on the federal government


Property lobby backs PC stamp duty land tax switch

By Leith van Onselen The Productivity Commission’s (PC) latest report, entitled Shifting the Dial: 5 year productivity review, included a recommendation for states to shift from stamp duty to land taxes: Recommendation 4.8 Remove stamp duties and implement transition to land tax State and Territory Governments should move from stamp duties on residential and commercial


Morrison spruiks “urgent” company tax cuts

By Leith van Onselen Scott Morrison just won’t let the Coalition’s company tax cut package die, declaring the ‘reform’ “critical” amid slumping productivity growth. From The Canberra Times: Treasurer Scott Morrison has declared business tax cuts are “urgent” as productivity growth dwindles and competitor economies prepare to slash company tax rates in a bid to


NSW light rail farce intensifies

By Leith van Onselen I noted yesterday how secret NSW Government documents were released late last year revealing that the Parramatta Light Rail Project – the centrepiece of the Government’s plans to cement Parramatta as Sydney’s second central business district, as well as facilitate the building thousands of apartments around Sydney Olympic Park – had