By Leith van Onselen The Committee for Economic Development of Australia (CEDA) yesterday released a 193-page report entitled A Federation for the 21st Century, which examines key issues for Australia’s federal system of government and assesses what can be done to improve the current structure and policy outcomes. The report identifies key areas where changes,
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.
Chris Weston, Chief Market Strategist at IG Markets It’s been a fairly lethargic open to the trading week here in Asia. However, it promises to be an interesting week due to the macro economic backdrop. Last week, global equities staged a solid rebound as earnings from the likes of Caterpillar, 3M, Boeing, Dow Chemicals and
By Leith van Onselen Prime Minister Tony Abbott delivered a sensible speech over the weekend, whereby he called to fix the “dog’s breakfast” of federation by working to resolve the mis-match between the states responsibilities and their revenue bases: We certainly have a national government and yet we have an unsatisfactory system of governance, because
By Leith van Onselen Deloitte Access Economics has warned of the massive likely hit to the Federal Budget if China’s growth slows more quickly than expected, noting that such an event could turn the Budget into a “fiscal fiasco”. From The Australian: …forecasts assume that China manages a very gradual slowing in its growth, but
Cross-posted from The Conversation: Australia’s Pharmaceutical Benefits Scheme (PBS) is one of the few pieces of national public health policy with unquestioned democratic legitimacy. It was established by the vote of a majority of citizens in a majority of states in a referendum in the late 1940s. Since then, it has lowered the cost of
By Leith van Onselen The Abbott Government’s attempt to overhaul Australia’s university system have hit a pot-hole, with the Coalition considering watering-down some key facets of its reform program in order to ensure its passage through the Senate. In the May Federal Budget, the Government announced that it would cut-back funding to universities by 20%,
By Leith van Onselen Tony Abbott’s flawed and unpopular paid parental leave (PPL) scheme has hit another major roadblock, with “Treasury officials revealing limited progress is being made in determining how state public service schemes will dovetail with the proposed Commonwealth one, or how much it will eventually cost”. From The Canberra Times: Discussions between
By Leith van Onselen The Government’s plan to make job seekers aged under 30 wait six months before receiving Youth Allowance or Newstart looks doomed, with Family First Senator, Bob Day, proposing a compromise one month delay and Social Services Minister, Kevin Andrews, indicating the government would support the measure. From The Canberra Times: “I
By Leith van Onselen Parliamentary Budget Office (PBO) chief, Phil Bowen, has issued another warning that that Federal Budget is facing an $18 billion black hole by 2024 because of the Senate’s reluctance to pass key Budget measures. From The Australian: Mr Bowen stood by his call for a “buffer” in the nation’s finances to
By Leith van Onselen Coalition finance minister, Mathias Cormann, has today announced details of the float of Medibank Private, claiming that the sale would raise between $4.3 billion and $5.5 billion for the federal government. From The Guardian: Cormann said this would place the business among the top 100 companies on the ASX. About 2.7bn
By Leith van Onselen The Australian has revealed today that Coalition members continue to revolt against Tony Abbott’s paid parental leave (PPL) scheme, with five members resolving to cross the floor and vote against the measure: [The members] are Barry O’Sullivan and Ian Macdonald from Queensland, Dean Smith from Western Australia, Cory Bernardi from South
By Leith van Onselen The Victorian Government has released its 2013-14 Annual Financial Report, which revealed a $2 billion surplus in 2013-14 – the largest Budget surplus recorded for the state in 15 years. The result smashed the $935 million surplus forecast in the May budget, and was driven by the early receipt of a
The Department of Finance has updated the Australian budget financial flows and the forecasts remain on track for the time being: Australian Government General Government Sector Monthly Financial Statements July and August 2014 Key Points The underlying cash balance for the 2014-15 financial year to 31 August 2014 was a deficit of $12,327 million. The fiscal balance for the
Not sure where this chap was when the WA budget was drawn up. From The West Australian, Acting Under-Treasurer Michael Barnes: After visiting several Chinese cities, including Hohhot, the capital of Inner Mongolia, Mr Barnes said he was convinced the sector was due for a severe correction. …”As far as the eye can see there are
An excellent piece from Laura Tingle over the weekend summarised the state of the Federal Budget: In all, including $19.4 billion of ‘appropriations’ which traditionally Parliament does not block, the government has to date got Parliament to agree to cuts worth $25 billion over the next four years. But a further $23 billion of budget measures remain
By Leith van Onselen The Abbott Government has reportedly all but conceded defeat on around $30 billion of Budget measures, choosing instead to devise an alternative path to savings, which will be revealed in the mid-year economic and fiscal outlook (MYEFO) in December. As reported in The AFR today, the Government’s planned higher education reforms
By Leith van Onselen A new report to be released today, entitled “Who Pays for Our Common Wealth? Tax Practices of the ASX 200″, has revealed that 29% of Australia’s top 200 listed companies pay effective corporate tax rates of 10% or less, with 84% of companies paying less than the 30% corporate tax rate.
By Leith van Onselen The Canberra Times is reporting today that the redundancy bill for Australia’s federal public servants blew-out to $580 million in 2013-2014 – more than double the forecast $273 million in the May Budget. It’s not all bad, however, with public service wage costs falling by more than $700 million from the
By Leith van Onselen With the Western Australian finances in disarray following the “unexpected” slump in the iron ore price, which threatens to blow a $1.5 billion hole in the State Budget, the State Government has resorted to tried and true method of flogging-off the states’ assets. As reported in Business Spectator today, the Western
By Leith van Onselen The Federal Budget deficit has ballooned-out to $48.5 billion, which is $30 billion worse than the previous Labor Government initially forecast, but slightly less than forecast by the Coalition in the May Budget, according to the Final Budget Outcome (FBO) for 2013-14, released today by Treasurer Joe Hockey: In 2013‑14, the
By Leith van Onselen The Australian Institute of Health and Welfare (AIHW) has released a new report revealing that Australian health spending growth has fallen to lowest level on record (in at least 30-years), driven by reductions in spending on the Pharmaceutical Benefits Scheme (PBS), public health, dental services and e-health: …total spending on health
By Leith van Onselen The International Monetary Fund (IMF) provided a useful blueprint for tax reform to the G20 finance ministers and central bankers meeting in Cairns, which hopefully should assist the Abbott Government in framing its upcoming tax reform white paper. Central to the IMF’s reform blueprint is shifting tax bases away from less
By Leith van Onselen One of the good news stories coming out of the G20 central bankers and finance ministers meeting in Cairns over the weekend was the global agreement to share information on tax avoidance by large multinational companies. On Saturday, Treasurer Joe Hockey introduced a detailed set of OECD recommendations to counter tax
Weeoo, weeoo, weeoo. From The Pascometer: Joe’s had a big win at the Forex casino. …Hockey loaded up last financial year’s “Labor” budget with an $8.8 billion capital injection for the RBA. The RBA didn’t ask for it, didn’t really need it, but certainly went for all it could carry when the offer was made as
One the more enduring features of the post-GFC political economy is the delusion that has taken hold our political elite when it comes to the usefulness of commodities. We have just sailed through an era when our macro managers decided it was a good idea to increase via strucutral adjustment Australia’s external exposure to volatile
By Leith van Onselen The ABC’s Ian Verrender has published an interesting article today on the challenges facing the Budget as iron ore prices and Australia’s terms-of-trade slump: Joe Hockey is facing his very own Wayne Swan moment. It is the point in time when it suddenly dawns on a treasurer that all those revenue
By Leith van Onselen Australian Treasury Secretary, Martin Parkinson, has given an interesting speech to the Business Council of Australia (BCA), which once again highlighted that Australia’s existing tax structure is becoming increasingly narrow and unsustainable, and how personal income taxes will rise dramatically via bracket creep as the once-in-a-century commodity price and mining investment
By Leith van Onselen Opposition Treasury spokesman, Chris Bowen, is set to propose a new plan that would remove responsibility over key economic forecasts in the Federal Budget from the Australian Treasury and instead grant these to the independent Parliamentary Budget Office (PBO). From ABC News: Mr Bowen will tell the National Press Club that