By Leith van Onselen Former federal Liberal Party Leader, John Hewson, has written a well-argued piece in The Drum calling for an independent Tax Commission to evaluate and drive tax reform: Australia needs to achieve genuine and sustainable tax and transfer reform. But how can that happen in what has become an extremely short-term-focused, adversarial
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 It seems Treasurer Joe Hockey’s war on entitlements doesn’t extend to his own family, with the Daily Telegraph uncovering that taxpayers are footing the bill on his family’s $1.5 million home in Canberra: JOE Hockey has defended his practice of claiming a $270-a-night taxpayer-funded travelling allowance to stay in a Canberra
By Leith van Onselen In the wake of biotechnology manufacturer, CSL’s, decision on Monday to build its new $500 million factory in Switzerland rather than Australia, Reserve Bank of Australia (RBA) board member, John Edwards, has called on Australia to cut its company tax rate to boost global competitiveness. From The AFR: Dr Edwards said Australia
Cross-posted from The Conversation Reducing the renewable energy target would cost the federal budget about $680 million more to meet Australia’s target of 5% emissions reduction by 2020, according to modelling released today by climate and conservation groups. The modelling found that cutting the RET would increase the profits of coal power stations while boosting
By Leith van Onselen It seems you can’t keep a dumb idea down. Just when it appeared that the Rudd Government’s pie-in-the-sky high speed rail (HSR) project linking the major East Coast capitals died with the former Government, the Abbott Government has sought to resurrect it. From The Australian: THE push for an east coast,
By Leith van Onselen John Daley, CEO of the Grattan Institute, has given a fantastic critique of the generational warfare inherent in the May Budget, which left untouched the ridiculously generous entitlements provided to richer, older Australians. From News.com.au: Mr Daley said people over 60 years old were essentially able to enjoy a tax-free threshold
By Leith van Onselen Jago Dodson, Professor of Urban Policy at at RMIT University, has called on the Victorian Government to tax inner city residents so that infrastructure and amenities can be expanded in outer areas. From The Age: The lack of access to services and jobs for people living in the outer suburbs contrasts
By Leith van Onselen US economics Nobel Laureate, Ed Prescott, claims that Australia’s top marginal income tax rate is too high, and threatens Australia’s growth. From The AFR: …at 49 per cent the top marginal tax rate would hurt growth and the government should redouble its efforts to bring down expenditure instead. “It’s too high,” said
By Leith van Onselen The Abbott Government’s sensible bid to have fuel excise indexation restored hit another road block yesterday when Treasurer Joe Hockey claimed in a radio interview that the measure would not have much impact on the poor, since “the poorest people either don’t have cars or actually don’t drive very far in
From Fairfax: Treasurer Joe Hockey has warned Australians he may be forced to take “emergency action” and deliver Queensland-style austerity if structural budget reforms are not made. On ABC local radio…in Brisbane: “What we are now at is the point where we are building the structural changes in the budget such as the copayment in
By Leith van Onselen The Abbott Government appears to finally be giving ground on controversial Budget measures, flagging that it might accept compromise packages that water down the proposed $7 GP co-payment and Tony Abbott’s paid parental leave (PPL) scheme. Regarding the GP co-payment, the Government is reportedly looking “seriously” at exempting vulnerable groups, such
By Leith van Onselen The Government’s plan to make job seekers aged under 30 wait six months before receiving Youth Allowance or Newstart has taken another hit, with Family First Senator, Bob Day, declaring war on the Budget measure. From The Australian: FAMILY First senator Bob Day has vowed to lobby all crossbench senators to
By Leith van Onselen Alan Kohler yesterday published an interesting piece in The Australian on the boom in Chinese tourism to Australia, which he claims is becoming a major export industry that will help to offset the unwinding of the mining boom: IT’S becoming clear that one of the industries that will replace the business of
By Leith van Onselen The lobby group representing private childcare providers – the Australian Childcare Alliance (ACA) – has slammed a proposed new activity test recommended in the Productivity Commission’s (PC) Draft Report into Childcare and Early Childhood Learning, claiming that it would spark a childcare “exodus”. From The Australian: Gwynn Bridge, head of the
By Leith van Onselen The Australian’s Adam Creighton has written a cracking article today on the huge blow-out in spending on Australia’s securities agencies, which are due to receive a huge slab of additional funding under the Abbott Government’s new counter-terrorism program: [Securities agencies] combined funding between 2000 and 2010 grew at a compound annual
By Leith van Onselen Fairfax Media has stepped up its attack on Joe Hockey following the Treasurer’s hissy fit over the weekend in which he accused Fairfax of “malevolent attacks” in relation to its Budget reporting. Following yesterday’s exchange, where Fairfax economics correspondent, Peter Martin, challenged Hockey to release the Treasury’s detailed modelling showing the
By Leith van Onselen Following a new audit report claiming that Labor’s National Broadband Network (NBN) was “rushed and chaotic”, communications minister, Malcolm Turnbull, has endorsed stringent new requirements for taxpayer-funded infrastructure projects worth more than $1 billion. From The Australian: The Minister endorsed a proposal for large public-sector projects costing more than $1bn to
By Leith van Onselen After Fairfax Media revealed details yesterday of a Freedom of Information (FOI) request showing the Budget’s adverse impact on lower income earners, Treasury Joe Hockey cracked a tantrum, accusing Fairfax of “malevolent attacks”. From The Australian: Mr Hockey claimed Fairfax Media’s coverage of the Treasury analysis… failed to take account of
By Leith van Onselen In his meeting with Treasury Hockey over the weekend, Senate crossbencher, David Leyonhjelm, reportedly demanded the Government properly means test the aged pension. From The Australian: Cutting wealthier pensioners out of the scheme would allow for a more generous pension for those most in need. The change could also involve creating
By Leith van Onselen A Freedom of Information (FOI) request lodged by Fairfax Media has revealed Treasury modelling showing that the measures introduced in the May Budget would be highly inequitable and punish lower income workers. From The Brisbane Times: The Treasury analysis reveals the spending cuts cost an average of $842 a year for
By Leith van Onselen It was revealed over the weekend that the Government has shelved Tony Abbott’s signature paid parental leave (PPL) scheme for fear that several Coalition backbenchers would cross-the-floor and vote against the scheme, causing embarrassment for Tony Abbott. From The Canberra Times: Several… sources said a message had been discreetly sent to Mr
By Leith van Onselen The Abbott Government has indicated that it will ditch its plan to apply real interest rates to outstanding student debts after it received advice from the architect of the HECS repayment scheme that it would unfairly punish to poor graduates. From The Canberra Times: Modelling by education economist Bruce Chapman has
By Leith van Onselen Business groups have taken aim at the Abbott Government’s road funding fettish, arguing that Australia’s dilapidated rail freight network is in desperate need of upgrading and is hampering the nation’s export competitiveness. From The AFR: Grain exporters are becoming increasingly frustrated with Australia’s poor freight rail networks, claiming lack of investment
By Leith van Onselen It seems Tony Abbott’s paid parental leave (PPL) scheme, which was devised on the fly by Abbott and Rupert Murdoch, has no friends left and faces imminent defeat in the Senate. Following the Greens’ reversal last week, in which they announced that they would now oppose the scheme, key Senate cross-benchers
By Leith van Onselen Former ACT Chief Minister, Kate Carnell, has joined the growing chorus of people against the ACT Light Rail Project, arguing that the population density along the proposed rail route linking Gungahlin in the North and Civic is far too low to make the project viable. From The Canberra Times: [Carnell said]
By Leith van Onselen ABC’s The Business last night aired a segment on the Defence discussion paper, released earlier this week, which questioned whether Australia should build defence hardware locally or instead purchase it off-the-shelf at lower cost offshore. It’s an interesting issue, particularly in light of the Government’s commitment to increase the nation’s defence
By Leith van Onselen I noted previously how the Coalition had flagged spending tens-of-billions of taxpayer dollars to local defence manufacturing, comprising locally built armoured vehicles, submarines and warships. Today, it has been revealed that a defence discussion paper to be released tomorrow by Defence Minister, David Johnston, will question the notion that Australia’s next
By Leith van Onselen Ross Gittins has posted a well-argued article today arguing that the Coalition’s Budget repair job was ill-targeted and should have sought to cut Australia’s myriad of tax concessions, rather than targeting important social programs: Joe Hockey and Tony Abbott are perfectly right in saying we need to get the budget back
By Leith van Onselen The head of the doctor’s union, Australian Medical Association (AMA) president, Brian Owler, yesterday gave an address to the National Press Club, in which he raised concern that Australia is heading down the path of a US-style health system. From The AFR: He said the $7 GP co-payment, cuts to hospital
By Leith van Onselen A new biography of Treasurer Joe Hockey has dropped a bomb on Tony Abbott’s contentious Paid Parental Leave (PPL) scheme, revealing that Abbott gave Rupert Murdoch a “full rundown” of the proposed scheme before announcing the policy in 2010 and without consulting his shadow cabinet or MPs. From The Guardian: “The