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.
By Leith van Onselen Two articles have emerged today outlining the acute pressures facing state government Budgets as they struggle with rising debt loads and the threat of credit ratings downgrades. The first, from The Australian, outlines how Queensland’s Newman Government is looking to sell-off public assets in order to pay down debt, which is
The Guardian’s Greg Jericho (aka “Grog’s Gamut”) has posted a detailed article today putting into perspective the level of taxpayer assistance provided to the automotive industry and showing that there are plenty of other sectors with their fingers in the Budget pie: From the talk by some commentators and government ministers you would think the
David Uren has a nice piece today at The Australian describing the MYEFO process: NEXT Tuesday’s budget update will be a shocker…There is a danger that the new government’s first major economic statement will extinguish what was an incipient economic recovery. …Hockey’s defence is that he has no alternative but to tell the truth about
By Leith van Onselen The Australian Council of Trade Unions (ACTU) has produced a good research note arguing that the Commission of Audit should focus on ways to boost Government revenue rather cutting expenditure, in particular by reforming the inequitable and unsustainable superannuation system: Australia’s governments, taken together, are smaller as a share of the
These politicians, who are so keen on referencing consumer confidence, really do know how to destroy it. From the AFR today come new forecasts for a MYEFO black hole that just keeps on growing: The federal government’s debt is expected to blow out to more than $500 billion, according to Treasurer Joe Hockey, who only two weeks
By Leith van Onselen In early 2003, I joined the Australian Treasury where I was immediately introduced to the Department’s “Three P’s” framework, which effectively argued that Australia needed to: 1) boost productivity; 2) raise workforce participation; and 3) increase the population via skilled migration, if the nation was to continue to enjoy rising living
From Peter Martin (who’s Treasury sources are excellent) today: The budget update to be unveiled next week will forecast a deficit of about $40 billion and a peak in debt of more than $400 billion. The figures are well above the forecasts of $30 billion and $370 billion in the Treasury’s pre-election budget update released
By Leith van Onselen John Piggott, director of the ARC Centre of Excellence in Population Ageing Research, wrote an interesting article over the weekend on the ageing conundrum facing Australia, and proposing to raise the rate of GST to mitigate the budgetary impacts. From The AFR: Demography gets much less attention from economists than it
From the AFR: The government’s mid-year economic fiscal and economic statement will likely be released next week and will contain a projected figure for peak debt, according to Treasurer Joe Hockey. During an interview with ABC Radio on Thursday morning Mr Hockey said the statement would be released “in the next few days” but a spokesperson
By Leith van Onselen From The AFR this afternoon comes news that the Federal Budget is likely to deteriorate further following today’s disappointing GDP results: Annual growth in GDP was 2.3 per cent. That is below Treasury’s last forecast for growth in the 2013-14 financial year of 2.5 per cent, released as part of the
By Leith van Onselen Private consulting firm, Macroeconomics, issued updated Budget forecasts yesterday, which warned that Australia faces a decade of deficits unless cuts are made to spending: The firm believes the short-term underlying budget position has improved since the September election, although this year’s deficit will be slightly worse than the official $30.1 billion
By Leith van Onselen Earlier this month, the head of the Prime Minister’s Economic Advisory Council, Maurice Newman, delivered a one-eyed speech to the Committee for Economic Development of Australia (CEDA), where he blamed the former Labor Government for the economy’s and Budget’s woes: After having watched five long years of reckless spending, economic waste,
By Leith van Onselen Recent reports released by the Grattan Institute and the Productivity Commission looking into the sustainability of the Federal budget as Australia’s population ages have generated some much needed debate on Australia’s retirement system, which is looking increasingly unsustainable. Just to recap, the Australian Bureau of Statistics (ABS) released it latest population
Cross-posted from The Conversation Both Labor and Coalition states are pushing the federal government to extend the GST to more online purchases as they look for additional sources of revenue. And while the Coalition had promised no changes in its first term, they are now “leaning towards [the tax] but will insist the states lead
By Leith van Onselen Yesterday, I questioned whether anyone in today’s crop of politicians would have the cojones stare down vested interests and clearly articulate the need for reform and ‘shared-sacrifice’ as the once-in-a-century mining boom fades and Australia’s population ages, which will place huge pressure on the Federal Budget (see below chart). Today, the
By Leith van Onselen Fairfax’s Tim Colebatch has written a timely piece on the need for the public to confront the economic realities of an ageing population and the necessary adjustment that must be made to retirement policy: They say a country gets the leaders it deserves. If so, what does this lot say about
By Leith van Onselen While the Grattan Institute’s new report, Balancing budgets: tough choices we need, was centred around winding back entitlements to older, wealthier Australians, it also included a section on abolishing negative gearing, which it claims would save the Budget around $4 billion per year initially, falling to a saving of around $2
By Leith van Onselen One of the most satisfying aspects of being a commentator is exerting a great deal of time and effort pushing a reform idea, and then finding that idea taking a life of its own, even if by coincidence. Over recent months, I have argued repeatedly that Australia’s retirement system is both
By Leith van Onselen Business Spectator’s Callum Pickering has this afternoon provided some sensible suggestions on how to improve the sustainability of Australia’s retirement system, which echos reforms proposed by me previously (for example, see here and here): To address rising age pension expenditures, I’d recommend a couple of things. First, the asset test for
By Leith van Onselen As expected, the Federal Government has today rejected the Productivity Commission’s call to raise the retirement age to 70: A spokesperson for Treasurer Joe Hockey said the Productivity Commission was an independent body and there were no current plans to follow its advice… The Labor opposition was at least more circumspect: Shadow
Cross-posted from The Conversation The Australian Taxation Office continues its campaign to track down the offshore bank accounts of wealthy Australians, amid a global effort to improve tax transparency. One option the ATO has in its kit bag is a tax amnesty, which it is considering for wealthy Australians who may have inherited sizeable Swiss
By Leith van Onselen The debt ceiling farce might be drawing to a close, with shadow Treasurer, Chris Bowen, offering to support the $200 billion increase in the debt ceiling (to $500 billion), provided the Government agrees to release updated forecasts to justify the need for the higher debt limit than Labor/Greens proposed $100 billion
By Leith van Onselen The Productivity Commission has released a new report warning of a Budget crisis unless reforms are made to raise the aged pension and compel retires to pay for more of their own health costs. From The AFR: Launching a major study into the policy effects of Australia’s ageing population, Productivity Commission
By Leith van Onselen Treasury Secretary, Martin Parkinson, has today acknowledged that Federal Government debt is likely to peak well above the $370 billion forecast in the previous Budget, also backing the Government’s call for the debt ceiling to be raised to $500 billion: “A debt limit in excess of $430 billion would be prudent
By Leith van Onselen Late Friday, Business Day’s Michael Pascoe continued his good recent work arguing that Treasurer Joe Hockey is placing politics ahead of the national interest in demanding that the Federal debt ceiling be raised from $300 billion to $500 billion, instead of the more moderate $100 billion extension agreed to by Labor
By Leith van Onselen The Federal Coalition is good at manufacturing crises. While in opposition, they continually labelled the former Labor Government as economic vandals, declaring a “budget emergency” and voting against Labor’s bill to increase the Federal Government debt ceiling to $300 billion in May 2012. Now in Government, the Coalition is once again
By Leith van Onselen Karma is a bitch. After spending five years lambasting the former Labor Government over their so-called reckless spending and a “budget emergency”, and voting against similar moves when Labor increased the debt limit to $300 billion in May 2012, Treasurer Joe Hockey’s bill to increase the federal debt limit to $500
By Leith van Onselen Ironic, isn’t it. After spending five years lambasting the former Labor Government over their so-called reckless spending and a “budget emergency”, Treasurer Joe Hockey has threatened spending cuts if Labor and the Greens do not pass the proposed increase in the Federal Budget debt limit from $300 billion to $500 billion
By Leith van Onselen Last night, the head of the Prime Minister’s Economic Advisory Council, Maurice Newman, delivered a speech to the Committee for Economic Development of Australia (CEDA) urging the Government to embrace economic and fiscal reform, whilst blaming the former Labor Government for the economy’s and Budget’s woes. There was some good aspects
By Leith van Onselen Treasurer Joe Hockey has this morning flagged that the Budget outlook will be “substantially worse” by the time that the Mid-Year Economic and Fiscal Outlook (MYEFO) is released in December. From the AFR: “It’s extremely challenging and before Christmas I will release the actual state of the books in what is
