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.


S&P again threatens sovereign downgrade

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


HIA talks land tax sense

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


Fixing fiscal imbalances the key to federal reform

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


Six simple tax reforms plagued by politics

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


Labor is lost on the GST

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


Joe Hockey to cut income taxes?

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


Bozo Joe Hockey lies again on super, negative gearing

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


Labor is lost on tax reform

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


Queensland budgets for perfection

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


S&P removes WA from downgrade watch

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


More Aged Pension delusion

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


Property Council talks its book on tax reform

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


“Ten flags” Tony blows flag budget

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


How Australia’s Budget is eating our Children

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


Grattan Institute slams Budget hopium

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


Parko slams both parties’ Budget ineptitude

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,


Tony’s tradies cop an ATO reaming

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


A budget lesson for Mathias Cormann

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.


The fiscal imbalances undermining the federation

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


ACOSS backs pension reform, slams super

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


NSW Budget guzzles stamp duty

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