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 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
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
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
By Leith van Onselen Nobel Prize winning economist, Joseph Stiglitz, has urged the Abbott Government to abandon its austerity drive and increase public spending. From The AFR: “Australia is in a very good fiscal position… I would have thought the focus should not have been on cutting spending, [and] fiscal stringency, but on investing more
By Leith van Onselen The Palmer United Party (PUP) is proving to be a major thorn in the side of Abbott Government, today vowing to oppose the Government’s repeal of Labor’s carbon tax compensation – a move that will punch another $700 million hole in the Federal Budget, according to The AFR. The former Labor Government
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
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
Cross-posted from The Conversation In deciding to vote against the restoration of fuel excise indexation, the Greens have let the perfect be the enemy of the good. They’ve gone against their own policy, and appeared to be all over the place in the process. The handling of the measure will reinforce the criticism of Christine
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.
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
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
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
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
Cross-posted from The Conversation One month on, the job of selling Australia’s budget continues. Treasurer Joe Hockey argues criticism of the budget has been unfair and misguided, akin to class warfare. He has countered the critics by asking if it’s fair that the average Australian works over one month full time each year to pay
By Leith van Onselen Little by little, the stupidity of the 12-kilometre ACT light rail project, connecting Gungahlin in the north and Civic, is coming to light. As noted previously, this project only came to fruition because Labor lacked the numbers to form government and needed to gain support from the Greens sole MLA, Shane
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
By Leith van Onselen The New South Wales Government has announced a plan to sell-off half of its electricity distribution network for $20 billion to fund investment in a new rail crossing under the harbour. From The SMH: A new rail crossing under the harbour and trains so frequent that no timetable is needed will
By Leith van Onselen I argued a few weeks back why the Australian Government should ditch the search for the wreckage of Malaysia Airlines Flight 370 (MH370), which went missing around three months ago, taking with it 12 Malaysian crew members and 227 passengers from 14 nations. Despite exhaustive efforts by all concerned, the international
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
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
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
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
By Leith van Onselen Per Capita has released its 2014 Tax Survey, which revealed “a marked turnaround in Australians’ attitudes to public spending and tax over the last 18 months”. Specifically, after a steady rise in the proportion of Australians who perceived they paid too much tax between 2010 and late 2012, most now believe
By Leith van Onselen I noted on Tuesday how the Western Australian Government’s iron ore forecasts were far too optimistic, and risked blowing a big hole in the state Budget. The problem is highlighted in the below table taken from the Budget papers, which shows a forecast spot price of $122.70 over 2014-15, and only
By Leith van Onselen The Australian Bureau of Statistics (ABS) has today announced sweeping cuts to its future work program in order to meet the Budget’s requirement to reduce expenditure by $50 million over three years: While the ABS has been able to implement efficiencies in its operations, these are insufficient to meet the expenditure
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
By Leith van Onselen One of the more peculiar measures to come out of the Federal Budget was the announced development of a $20 billion Medical Research Future Fund, which is to be funded entirely from the $7 co-payment on GP visits, a $5 increase in Pharmaceutical Benefits Scheme prescriptions ($0.80 for concession holders), and
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
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
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
