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.
Here are the Budget’s major economic assumptions: Growth for this year has been rounded up slightly from 2.5% to 2.75%, whereas growth in 2014/15 and 2015/16 has been left unchanged from the MYEFO at 2.5% and 3%. Somehow, we’re supposed to grow at 3.5% after that. Perhaps most importantly, despite swings and roundabouts, public final
Cross-posted from The Conversation: The proposed sale of the Royal Australian Mint, expected to be announced in tonight’s Federal Budget, raises significant issues that should be addressed by the Coalition government before they go further down the path of privatising this and other national assets. It is clear this government is determined to move public
Former Labor-insider, The Kouk, is out again today leveling wild accusations about Budget fraud: Today’s the day the snake oil assumptions that created the budget ’emergency’ should be washed away and the true position of the long run fiscal settings will be revealed. A vital element of the bottom line of the 2014-15 budget and
By Leith van Onselen How times change. 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. After dishing out some modest
By Leith van Onselen The Abbott Government looks set for a fight to get its Budget deficit levy on high income earners through the Senate, with Greens leader, Christine Milne, vowing to opposing the measure on the grounds that it is not permanent. From The Canberra Times: Senator Milne said the party opposed the levy
By Leith van Onselen Fairfax’s Peter Martin has produced some nice analysis today showing how the Coalition’s proposed Budget cuts are targeting areas of low spending growth – that is where spending is growing far more slowly than other government spending: …spending on the disability support pension is projected to grow only 2.8 per cent,
By Leith van Onselen Following the Grattan Institute’s recent report questioning the new federal-state government deal to expand infrastructure investment through “capital recycling”, chairman of the Productivity Commission, Peter Harris, delivered a speech on Friday warning against governments committing billions of dollars of funding to infrastructure projects without undertaking any proper cost-benefit analysis: Projects plans
By Leith van Onselen More details have emerged about the large cull about to take place across the federal public service. According to The Australian, up to 70 government agencies will be either scrapped or merged, with four major bodies – including the Royal Australian Mint and Defence Housing Australia – also to be placed
This weekend saw the release of the Department of Finance’s monthly tracking of the government’s cash flow and it showed that for all of the bleating from certain quarters about the cyclical rebound the deficit is only marginally better than that projected in the supposedly uber-bearish MYEFO. Craig James at COMMSEC has a note on
By Leith van Onselen The AFR reported over the weekend that this week’s Federal Budget would include special incentive payments to employers that take on workers over the age of 50 who have been unemployed for six months or more: …employers will be paid $250 a fortnight for six months if they take on somebody aged 50
By Leith van Onselen The Labor Party seems intent to follow Tony Abbott’s (aka “Dr No’s”) example in opposition and oppose nearly all attempts at reform. Today, Opposition transport spokesman, Anthony Albanese, has come out strongly against the proposed re-indexation of fuel excise, claiming it is a broken promise by the Abbott Government, whilst slamming
By Leith van Onselen Former Prime Minister, Paul Keating, seems to be losing his marbles in his old age, last night recommending that Australian workers get slugged another levy to cover “geriatric” care for people aged 80-plus: “We have to have, I believe, a commonwealth insurance scheme for the 80-100s with a calibrated, precise product,
By Leith van Onselen Reports have emerged today about a large cull about to take place across the federal public service. According to The Australian, over 200 spending programs face the axe in next week’s Budget, spanning the environment, transport, industry, agriculture and indigenous affairs departments. Apparently, the Australian Taxation Office alone will have to
By Leith van Onselen Back in 2001, when former Prime Minister John Howard made the politically expedient but short-sighted decision to abolish the twice yearly indexation of fuel excise, I bet he never imagined (or cared) that his protege, Tony Abbott, would be left carrying the bag. The decision to stop fuel excise indexation now
From Bill Evans at Westpac today: Westpac expects the underlying budget deficit for 2014/15 to be announced by the government as $26.0bn on Budget night on May 13. That is about $8bn lower than the estimate from the government’s Mid Year review of $33.9bn. • The improvement will come from a modest increase in the
By Leith van Onselen If a sensible policy reform like raising the fuel excise can’t achieve broad political support, then I don’t know what will. When quizzed about whether Labor would support the measure, Opposition leader, Bill Shorten, was non-committal, declaring reports about raising the fuel excise as “just another ‘kite’ being flown by the
By Leith van Onselen Chris Richardson from Deloitte-Access Economics has penned an interesting article in The AFR explaining why the Budget has turned from a perennial ‘good news story’ during the 2000s to a ‘bad news story’ now, despite the economy seemingly being in reasonable health. Essentially, Richardson argues that the federal government took the
By Leith van Onselen In 2001, just prior to the 2001 Federal Election, the Howard Government made the short-sighted decision to freeze Australia’s fuel excise at 38.14 cents a litre, abandoning the twice yearly CPI increase that had long been a feature of Australia’s excise system. Facing an assault over the rising cost of living,
By Leith van Onselen Reports have emerged that the Coalition has wound back its proposed deficit levy, raising the income threshold from $80,000 to $150,000. From The AFR: It is now understood the threshold could be restricted to those on incomes above $150,000 paying an extra 1 per cent. This would ensure that the tax
By Leith van Onselen The Coalition’s proposed debt levy is facing a major battle from within, with cabinet remaining split over the measure. Opposition from former Howard Government king pins – Peter Costello and Peter Reith – amongst others, has reportedly fanned the flames, as is the diminishing prospect that the measure would ever become
By Leith van Onselen The Victorian Government yesterday afternoon released the State Budget for 2014-15, which included the following headlines: An operating surplus of $1.3 billion in 2014-15, with surpluses totaling $11 billion projected over the next four years; Up to $27 billion in new infrastructure projects covering road, rail, level crossings and schools; Payroll
Cross-posted from The Conversation: There was nothing in the Commission of Audit’s terms of reference inviting it to make recommendations on the minimum wage. The Commission was asked to produce a report on “government expenditure”. Yet the commission has recommended fundamental changes to the fixing of the minimum wage including, over time, cuts averaging 21%
The free radical introduced to Australian politics is moving with increasing energy: With Labor and the Greens controlling the Senate until July 1, the government will need Mr Palmer’s support to pass the pension age change, if it wants the legislation through before the next election. But Mr Palmer has released a statement saying it
By Leith van Onselen It seems the Abbott Government’s proposed Budget debt levy has no friends, with senior Liberal elders lining up against the tax. Yesterday, The Australian reported that former Howard Government minister, Peter Reith, had received numerous angry phone calls from die hard Liberal supporters and revealed that he himself opposes the tax:
By Leith van Onselen Alan Kohler continues his recent conversion to skeptic of Australia’s population ponzi, arguing today in The Australian that government budgets are failing to keep up with population growth, which is placing pressure, in particular, on the nation’s infrastructure and requiring increased investment: …Australia’s population grew by nearly 8000 people per week
By Leith van Onselen The Abbott Government has sensibly thrown-out the Commission of Audit’s (COA) spurious recommendation to slash Australia’s minimum wage from 56% of average weekly earnings to 44%, by letting the minimum wage increase by 1% less than inflation until 2023, a move that would effectively see the minimum wage cut by 19%
By Leith van Onselen The Grattan Institute has released a new report questioning the new federal-state government deal to expand infrastructure investment through “capital recycling”, arguing that it can actually worsen longer-term government finances [my emphasis]: Capital recycling – selling assets and spending the proceeds on new assets – would reduce the debt of state
By Leith van Onselen The Coalition are at it again: wrongly blaming the former Labor Government for the Budget’s woes, while completely ignoring the major role played by the Howard Government. Last Monday, Prime Minister Tony Abbott exhorted: “They didn’t just booby-trap the budget, they created a Ponzi scheme of unsustainable spending because they thought