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.


Budget forecasts lowest population growth since WW2

Tucked away deep in Budget Paper 3 were the below forecasts for net overseas migration (NOM), with the Treasury’s Centre for Population now expecting NOM will turn negative for the first time since the Second World War (WW2), recording declines of -71,600 in 2020-21 and -21,600 in 2021-22, before recovering to 95,900 in 2022-23 and


Australia has lost the capacity to debate economics

Yesterday’s MSM budget discussion was shockingly bad. Most worryingly, both criticism and praise of the Depressionberg budget was wrong and misleading, suggesting Australia has lost the capacity to even debate vital economic decisions. On the critical side, Bernard Keane at Crikey composed misleading reams. To begin with, we got this: The Morrison government is counting


Welfare cliff looms large after failed budget

One of the biggest failures of last night’s federal budget was that it failed to permanently lift the rate of JobSeeker from its poverty rate of around $40 per day. This means that Australia still faces a gaping welfare cliff once the temporary JobSeeker coronavirus supplement is unwound from 31 December, alongside the scheduled abolition


Irrelevant ratings agencies bleat on budget

Via Fitch comes kindergarten level analysis: Jeremy Zook, Director, Sovereign Ratings – APAC, Fitch Ratings has prepared the following comments on the October 6th Australia Federal budget: The Federal budget announced on 6 October signals a more proactive use of fiscal policy in both the near- and medium-term to support the economic recovery from the coronavirus shock,


Budget shoves RBA to event horizon of deflation black hole

Leith has nicely summarised the new budget: In normal times, I would not have any major concerns with this budget. It is a fairly conservative affair with not too much pork, save for some excessive wage subsidy giveaways to business. The problem is, these are not normal times. This is the biggest economic contraction since


Federal Budget 2020: Where’s the demand?

Tonight’s Federal Budget delivered by Treasurer Josh Frydenberg was a dull affair that lacked ambition and included no real surprises. As expected, the Budget deficit is projected to balloon: However, the economic projections are rose coloured, with growth projected to bounce back strongly alongside a magical gradual return to trend unemployment by 2023-24: Turning to


Grattan Institute parses income tax cut debate

The Grattan Institute has done a good job summarising the debate over income tax cuts: Many of the core arguments appear contradictory: most of the tax cuts benefit high-income earners, yet some people argue that high-income earners will end up paying a higher share of tax. Some argue the tax cuts are needed to support the economic recovery, while others


APS becomes key player in ‘gig’ economy

Last month, the ABC reported that the federal government’s use of contractors, consultants and labour-hire firms has exploded under the Coalition: …an ABC analysis of about 120,000 federal government contracts — for services such as consulting, staffing and recruitment — suggests the Commonwealth’s market for “private” labour has doubled in the past five years, and


Property lobby demands more budget pork

Not satisfied with the Morrison Government’s gutting of responsible lending laws, the RBA’s monetisation of the mortgage market, or the expansion of the First Home Buyer Deposit Scheme, Australia’s property lobby is calling for more budget pork: The expansion of the first home buyers’ scheme by 10,000 places has been attacked by the real estate


Coalition to launch ultimate ‘ProfitKeeper’ wage subsidy scheme

Last month we reported how the Morrison Government’s JobKeeper subsidy has been an absolute boon for Australian business owners, juicing company dividends and profits. This was reflected in the latest national accounts for the June quarter, which showed that employee wages & salaries fell by 3.3% over the quarter while company profits soared by 13.7%:


Depressionberg’s infrastructure bust smashes construction

Most PMIs are next to useless at the moment because they are directional not activity level based. The PCI is no different: Some improvement but still getting worse in aggregate. New orders show HomeBuilder impact bu are still at low levels: Everything else remains crapola: Most especially Depressionberg’s big infrastructure bust: This is criminal negligence.


More budget leaks: Housing, tax cuts, giveaways

News reported over the weekend that Treasurer Depressionberg will backdate tax cuts: Treasurer Josh Frydenberg is planning to backdate personal income tax cuts in Tuesday night’s budget ensuring workers have more money in their pockets and don’t have to wait for tax relief. The “instant” tax relief can be delivered swiftly despite the new financial


NSW public servants need to learn shared sacrifice

NSW public servants are considering industrial action after the Industrial Relations Commission (IRC) granted them pay rises of only 0.3%: The wages of more than 400,000 public sector workers will increase by 0.3 per cent over the next 12 months, after a ruling by the NSW Industrial Relations Commission (IRC). The NSW Government in May


UBS: Government debt massive. Not enough!

Via the excellent George Tharenou at UBS: Record deficits likely: $235bn (12.0% of GDP) in 20/21; $100bn (4.9%) in 21/22 The Australian Government will release the 20/21 (Commonwealth) Budget on October 6 (delayed since May). Unsurprisingly due to COVID-19, we expect record budget deficits. After a balanced budget in 18/19 was the best since the


Why small business tax cuts are a waste

Economist Saul Eslake has slammed the obsession with tax cuts for small businesses. Eslake believes these tax concessions have done little to boost jobs growth since they were introduced in 2015. Instead, small businesses have in fact shed jobs over the last five years. Eslake has instead called for the tax concessions to be scrapped and


2020-21 Budget Preview

By Gareth Aird, head of Australian economics at CBA: Key Points: The 2020/21 Budget is scheduled for release at 7.30pm (AEST) 6 October. More stimulus is expected to be announced, including personal income tax cuts, infrastructure spending and a business investment allowance. Our point estimate for the underlying cashdeficit in 2020/21 is $A220bn (11.3% of


Victorian Government faces lawsuits over COVID-19 failures

According to The Australian’s Robert Gottliebsen, Victoria’s hotel quarantine program could potentially result in government ministers being prosecuted under the state’s Occupational Health and Safety (OHS) Act. A group of OHS lawyers have used the transcripts from the inquiry into the program to conclude that four ministers and 16 public servants should be prosecuted, as


Telstra outmaneuvers and dominates NBN

Telstra has struck a deal with the federal government to launch a 5G fixed wireless broadband service that will compete head-to-head with the National Broadband Network (NBN): Communications Minister Paul Fletcher said on Tuesday he was confident Telstra’s decision to compete with the NBN on 5G home broadband would not violate the definitive agreement signed


Let farmers burn!

A wage rise is, these days, UnAustralian: Younger Australians will be offered new incentives to fill a growing jobs gap in the regions as part of a budget package that aims to boost farm production to $100 billion within a decade. The new measures seek to encourage people on JobSeeker and Youth Allowance to take


Billionaire Solomon Lew takes taxpayers to cleaners

Billionaire Solomon Lew’s retail empire, Premier Investments, recorded booming profits and declared a fat dividend as it received $60 million of JobKeeper wage subsidies and refused to pay rents to landlords: [Premier] delivered a booming annual profit, buoyed by a quick shift to online shopping and the injection of $60 million in JobKeeper wage subsidies


Multinationals fight back against ATO profit shifting crackdown

The Australian Taxation Office (ATO) served 181 companies with $2.5 billion worth of tax bills in the 2020 financial year, with the companies in question in sectors such as pharmaceuticals, e-commerce and resources. However, ATO Deputy Commissioner Rebecca Saint says billions of dollars worth of tax bills are being disputed by 26 different taxpayers: Data


Scotty from Marketing manufactures complete bull

It turns out that there is something worse than a Coalition Government dedicated to the hollowing out of the industrial base. A Coalition Government that pretends to fix it. Via News: Prime Minister Scott Morrison has flagged infrastructure and manufacturing as the industries that will help Australia continue to rebuild from the COVID-19 pandemic. And


Deloitte: Bring forward personal tax cuts

Deloitte Access Economics’ chief economist, Chris Richardson, has urged the federal government to bring forward stages 2 and 3 of its legislated income tac cuts in next month’s federal budget: As the budget faces greater pressure, a number of groups have been calling on the Morrison Government to dump the later stages of its legislated


Should bankers or Australians get RBA “monopoly money”?

Rentier HQ at the AFR, governed by “businessomics” doyen Michael Stutchbury, is in no doubt who should get the free “monopoly money”. It is not you: …using monetary policy to support the economy should not be confused with “funding” any level of fiscal policy stimulus by issuing Monopoly money. …As Reserve Bank governor Philip Lowe


UBS: Australian recovery “faltering”

That is, before the fiscal cliff: Australian economic recovery is faltering, and more policy stimulus is likely The Australian economy initially significantly outperformed global trends, with Q2 GDP down ‘only’ 7% q/q, and a strong rebound in early Q3 data, seeing the unemployment rate surprisingly drop back to 6.8%. However, recently there are signs the