By Leith van Onselen My cousin, Peter van Onselen, wrote a cracking article in The Australian over the weekend calling for reform of politician entitlements, which costs taxpayers a whopping $500 million a year and are often misused: Make no mistake, we should dwell on what Bishop did when she took a helicopter at taxpayers’
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.
Fresh from S&P, here is another reason for Aussie weakness today: OVERVIEW The sovereign credit ratings on Australia benefit from the country’s strong institutional settings, its wealthy and resilient economy, and significant monetary and fiscal policy flexibility. The country’s high external and household indebtedness, as well as vulnerability to weakening commodity export demand, moderate these
I noted Wednesday that Capt’ Glenn’s embrace of notions of secular stagnation had punched a huge hole in Bozo Joe’s Budget outlook and today David Uren sticks his head through it to find a gaping maw: Reserve Bank governor Glenn Stevens’ warning on Wednesday that Australia’s potential growth rate may have fallen permanently would have
By David Collyer, cross-posted from Prosper Australia: The Housing Industry Association’s Harley Dale and the Urban Development Institute’s Michael Corcoran have called for the repeal of Stamp Duty in favor of a broad-based land tax, News Corp reports. Both lobby groups fear an extension of the GST to building products, which would be passed on
By Leith van Onselen With state premiers currently meeting with the Abbott Government in Canberra to discuss the federation, there is much speculation about whether an agreement can be struck on tax reform, health and education, to ensure that the federal system meets the needs of the population into the future. While commentators often get hung-up
Even before the government’s options paper on tax reform is released later this year, many reforms have been taken off the table, at least before the next election. Here’s the expert view on six. Broadening or increasing the GST Some experts say expanding the GST, which is a regressive tax, would unfairly hit middle-income earners
By Leith van Onselen The Labor Party has continued its confused blanket rejection of GST reform, this time via its think tank the, Chifley Research Centre, whose executive director, Michael Cooney, has argued the following today in The Drum: The right-wing brain explosion over a higher GST is a case of evidence-free policy… It’s hard
By Leith van Onselen The Australian has published an article today claiming that Treasurer Joe Hockey will take cuts to personal income taxes to the next election: Australia’s top tax rate is “way too high’’ and the taxation system is compounding the headache of bracket creep as a disincentive to earn, Joe Hockey has conceded
By Leith van Onselen After admitting in May that superannuation reform was inevitable in the interests of budget sustainability, Treasurer Joe Hockey has once again ruled-out ever changing superannuation tax settings. From Money Management: Addressing a PWC Tax Reform Forum, Hockey said that not only was the Government going to stick to its promise not to
By Leith van Onselen Yesterday evening, Labor finance spokesman, Tony Burke, confirmed the opposition would not support changes to the GST because it is a regressive tax. From The Canberra Times: Opposition finance spokesman Tony Burke said Labor still opposed “increasing the rate and base” of the GST, after Mr Hockey said it would be
By Leith van Onselen The AFR has this afternoon quoted PwC research estimating that bracket creep (aka “fiscal drag”) will cost Australian workers $45 billion through higher income taxes within 5 years: “That’s three times the cost of broadening GST to food, health and education at $13.5 billion and just under the cost of broadening
By Leith van Onselen The Grattan Institute has released a working paper entitled Property Taxes, which makes a welcome addition to the debate about how to best reform Australia’s tax system. The paper correctly notes that property taxes – which are levied on the value of property holdings – are the most efficient taxes available
By Leith van Onselen The Queensland Government released its State Budget yesterday afternoon, which forecast the biggest budget surplus in nine years and a plan to reduce debt, all based on optimistic assumptions around growth. The budget forecasts a $962 million operating surplus in 2014-15, rising to $1.2 billion in 2015-16 and then $2 billion
From S&P: Ratings On The State of Western Australia Affirmed At ‘AA+/A-1+’ And Removed From CreditWatch Negative; Outlook Negative • Recent sharp falls in iron ore prices have significantly weakened the outlook for Western Australia’s mining royalty receipts and budgetary performance. • In fiscal 2016 and 2017, we expect the state to run cash operating
By Leith van Onselen Per Capita research fellow, Emily Millane, has penned a strange piece in ABC’s The Drum lamenting the deal struck by the Abbott Government and the Greens to wind back eligibility to the Aged Pension to retirees with significant assets: …with the barest scintilla of democratic scrutiny, the Government and the Greens
By Leith van Onselen Australian Treasury head, John Fraser, gave a speech on Friday to the 2015 Australian Conference of Economists, whereby he pushed the case for tax reform: Unless we lift productivity growth, through reforms across all sectors of our economy, we face a future of stagnant and possibly declining living standards – a
By Leith van Onselen The Property Council of Australia (PCA) has stepped-up its lobbying on tax reform, commissioning research based on a survey of 1,957 respondents showing that most Australians would prefer to see stamp duty abolished in exchange for an increase in the GST: A comprehensive report from Newgate Research Community attitudes towards tax
From the AFR: Federal politicians spent over $500,000 on flags in the second half of last year, but their patriotic zeal may be dampened after the Treasury tightened its flag budget from July 1. Liberal MP and former Australian tennis hero John Alexander topped the flag spending at $17,949, followed by independent MP Bob Katter on $13,320 and and National
In Bozo Joe’s recent Budget he forecast an iron ore price of $48. However, that price was FOB which does not include the cost of delivery which is around $6 per tonne. Thus the Budget forecast was actually a CFR (or spot) equivalent price of $54 in the forward estimates. The cheapest iron ore production in the
By Leith van Onselen Following on from my post earlier today on the Grattan Institute’s new report, Fiscal Challenges for Australia, which examines Australia’s weakening budgetary position and some of the revenue measures needed to address it, Grattan’s CEO, John Daley, has appeared in The AFR warning of a huge hit to living standards for
By Leith van Onselen The Grattan Institute has released an excellent new report, entitled Fiscal Challenges for Australia, which examines Australia’s weakening budgetary position and some of the revenue measures needed to address it. The report finds that both major parties have been relying on bracket creep (aka ‘fiscal drag’) and favourable economic conditions to
By Leith van Onselen Former Australian Treasury Secretary, Martin Parkinson, has given both major parties a strong dose of Budget medicine, slamming them for putting populist politics ahead of the nation’s finances and economy. Appearing at a conference at the Australian National University (ANU) yesterday, Dr Parkinson warned that Australia’s economic growth is under threat,
From Fairfax: Hundreds of thousands of building industry contractors who may have dodged their GST or income-tax obligations have been hit with $2.3 billion in tax bills. But there could be billions more outstanding, as the Australian Taxation Office (ATO) continues data matching information reported to it to identify operators in the cash economy. A reporting
By Leith van Onselen Finance Minister, Mathias Cormann, gave an interview on ABC Radio this morning in which he downplayed the IMF’s warning about Australia’s growth prospects and talked-up the prospects for Budget repair: MICHAEL BRISSENDEN: The IMF is warning that the Government’s budget repair is in danger because of over-inflated revenue and spending expectations.
By Leith van Onselen Last month, new Queensland Treasurer, Curtis Pitt, made waves when he argued that the state economy was in recession in late 2014 – a view supported by the latest national accounts, which showed Queensland state final demand contracting for seven consecutive quarters in trend terms (see next chart). Yesterday, Pitt revealed
By Leith van Onselen After intense speculation that the Abbott Government is seeking to rip further funding for hospitals and schools from the states, the Government on Tuesday released its 121-page discussion (green) paper on the reform of Australia’s federation. The paper canvasses wide-ranging options for reforms in health, education, housing and homelessness, and federation
By Leith van Onselen Earlier this year, the Australian Council of Social Service (ACOSS) released its pre-Budget submission, which charted a fairer path back to Budget surplus by unwinding inefficient and inequitable tax and welfare arrangements, rather than through direct spending cuts targeting the vulnerable. Following the passage on Monday evening of the Government’s reforms
By Leith van Onselen The NSW Government has today released its State Budget, which recorded a record $2.1 billion Budget surplus on the back of the booming Sydney housing market (see next chart). As shown below, the Government reaped a massive $1.2 billion windfall in 2014-15 as stamp duties on property transfers came in much