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.

101

How Australia squandered the boom

By Leith van Onselen As noted by Houses & Holes earlier, ANZ has released new analysis arguing that successive Australian governments have failed to adequately tax Australia’s mining boom, leaving Australians short-changed: ”The MRRT only raised $200 million [or 5 per cent of the amount originally estimated] in 2012-13 and is estimated to raise just

15

Government policy will worsen science shortages

By Leith van Onselen Ross Pilling, managing director of BASF Australia & New Zealand and deputy national president of the Australian Industry Group, has posted an article in The AFR today arguing that Australian business becoming increasingly concerned by declining participation rates in the so-called STEM disciplines of science, technology, engineering and mathematics: …only one in 10

25

Turnbull acknowledges grey gouge (locked)

By Leith van Onselen Communications Minister, Malcolm Turnbull, appeared at a conference yesterday (see above video) where he took a swipe at Australia’s tax system, claiming that it is overly reliant on personal income taxes and favours older people over younger people: “Looking at Australia’s tax regime you would say that it is too tough

19

Abbott to reconsider $7 GP co-payment?

By Leith van Onselen From The Australian today comes news that Prime Minister Abbott is considering revising the $7 GP co-payment upon advice from the Australian Medical Association (AMA): AMA president Brian Owler, speaking after a “very constructive” meeting with the Prime Minister and Health Minister Peter Dutton in Canberra, said he would return with

36

Rising uni fees to punish lower paid professions

By Leith van Onselen The National Centre for Social and Economic Modelling (NATSEM), which is attached to the University of Canberra, has released new estimates of how the May Budget’s changes to university fees are likely to impact on various courses: The actual extent of fee increases is at this point unknowable although certainly expected

48

Budget hypocrisy reaches the extreme

By Leith van Onselen The opposition parties continue to follow Tony Abbott’s “Dr No” example in opposition and oppose nearly all attempts at Budget reform. Today, Fairfax has revealed that the Australian Labor Party (ALP) will join the Greens in opposing 20 of 32 Budget savings measures, including: …the restoration of the federal fuel excise.

29

Axe falls on economic mandarins

By Leith van Onselen Times are certainly changing. This time a decade ago I was working for the Australian Treasury. The mood was high, the Australian economy was motoring, and the Budget was starting to see the rivers of gold flow from the initial phase of the once-in-a-century commodity price boom. In 2003, the Treasury

17

Palmer’s Budget reforms don’t add up

By Leith van Onselen Clive Palmer’s political theatrics are a sight to behold. Following the release of the Federal Budget, the Palmer United Party (PUP) brushed-off claims of an impending Budget emergency and vowed to oppose virtually every significant measure in the Budget, including “the imposition of a debt tax, huge cuts to public sector

49

The Greens hideous fuel excise hypocrisy

By Leith van Onselen All opposition parties seem intent to follow Tony Abbott’s (aka “Dr No’s”) example in opposition and oppose nearly all attempts at sensible reform. Since the release of the Federal Budget, the Australian Labor Party (ALP) has opposed the re-indexation of fuel excise, claiming that it is a broken promise by the

59

The great childcare inflation

By Leith van Onselen Social services minister, Kevin Andrews, was out and about over the weekend arguing that wider workforce participation rates will be needed amongst seniors and women in order to reduce the economic and budgetary pressures arising from an ageing population. The reference to gaining higher workforce participation from women was clearly aimed

78

Hockey’s Budget defence doesn’t hold water

By Leith van Onselen Treasurer Joe Hockey last night delivered a speech to the Sydney Institute, in which he vigorously defended last month’s Federal Budget and attacked opponents for engaging in 1970s-style “class warfare”. From The AFR: Mr Hockey rejected claims that the budget signaled the demise of universal healthcare and free higher education, saying

33

No Joe, paid parental leave isn’t a “no brainer”

By Leith van Onselen Federal Treasurer, Joe Hockey, has pulled rank today, leaping to the defence of his leader, Tony Abbott’s, flawed paid parental leave (PPL) scheme. From The Australian: …the Treasurer said the government’s $5.5 billion scheme was a “no-brainer” for regional Australia, and that mums on low and middle incomes would be the

9

How to fix Australia’s fiscal feud

Cross-posted from The Conversation: A common feature of most federal systems of government is that the states depend on transfers from the Commonwealth for a substantial share of their revenue. In Australia, the states (and territories) account for about 40% of aggregate federal and state government expenditure, but they collect less than half of this

34

Palmer gives Abbott a way out on parental leave

By Leith van Onselen For months, Tony Abbott’s $5.5 billion a year Paid Parental Leave (PPL) Scheme has been condemned from every corner. Back in March, The AFR reported that former Treasury Secretary, Ken Henry, had cautioned against the Scheme, questioning whether it was appropriate as the Federal Budget comes under increasing pressure as the

55

When it pays to pack-up and leave our shores

By Leith van Onselen The Fairfax dailies ran an article over the long-weekend claiming that Aged Pensioners are increasingly moving overseas as the pension and their superannuation savings fails to keep pace with Australia’s rising cost of living: …government data shows there was a 30 per cent increase in the number of people claiming the

64

Parko: Australians have a Budget ‘reality gap’

By Leith van Onselen Australian Treasury Secretary, Martin Parkinson, has once again outlined in no uncertain terms why fundamental budgetary reform is essential, and how Australians seem to be suffering a “reality gap” in failing to understand why current Budget settings are unsustainable. From The Age: ”For the last three years I have been saying

18

Pros and cons in Newman privatisation surge

By Leith van Onselen The Queensland Budget was released yesterday afternoon, the centre-piece of which is the plan to raise $33.6 billion through the sale, privatisation, and leasing of public assets in a bid to pay-down debt and invest in further infrastructure. Included in the privatisation program are: the SunWater industrial pipelines; electricity generators CS

56

Xenophon: New mini-Budget will be needed

From the ABC comes news we can all look forward to: The Prime Minister Tony Abbott will head to Indonesia this morning to begin almost a fortnight overseas, leaving his senior colleagues with the unenviable task of trying to increase support for the budget. The Independent Senator Nick Xenophon is predicting the Government might be forced

29

WA Budget an iron ore comedy act

By Leith van Onselen The AFR has a report today claiming that the Western Australian Budget is facing a big hit to revenue as iron ore prices decline far faster than forecast in the Budget: A sustained fall in the iron ore price could erase more than $1 billion from Western Australia’s debt-laden ­balance sheet… The state government