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.

54

Should motorists pay per drive?

By Leith van Onselen The Australian has reported today on a new report by the Productivity Commission proposing to charge motorists for every kilometre that they travel, in a bid to boost private investment in roads: Central to the new report is a plan for Canberra to help the states set up pilot projects that

24

Time to reverse out of PPL, Tony

By Leith van Onselen It seems the lovechild of Prime Minister Tony Abbott, his $5.5 billion a year Paid Parental Leave (PPL) Scheme, has few friends. Yesterday, The AFR reported that former Treasury Secretary, Ken Henry, cautioned against the Scheme, questioning whether it was appropriate as the Federal Budget comes under increasing pressure as the

44

Why major Budget reform is needed to avert crisis

By Leith van Onselen In a speech yesterday at the Australian National University, former Australian Treasury secretary, Dr Ken Henry, and former Liberal leader, John Hewson, warned of a looming “crisis” in Australia’s taxation system unless there was widespread reform. From The AFR: “There will be a day of reckoning”. …we are getting closer to

14

Labor Budget booby trap springs

From The Australian: TREASURY has warned Joe Hockey of an $18 billion spending burden that will destroy his plan for a “path to surplus” unless drastic action is taken in May to overhaul the federal budget. …Updating its estimates before the budget, Treasury calculates that the additional spending amounts to about 1 per cent of

26

Age of military entitlement

By Leith van Onselen I noted a few weeks back how the Coalition has ear-marked tens-of-billions of taxpayer dollars to local defence manufacturing, including a $10 billion to $15 billion-program for 1,000 locally produced armoured vehicles, as well as locally designed and built submarines for around $40 billion. Then later, The Australian reported how the Government is about to

12

Moving beyond the agriculture of entitlement

Cross-posted from The Conversation The announcement of drought relief funding for farmers by an Australian prime minister would not normally be a cause for surprise. But last week’s A$324 million drought package comes amid a concerted push by this government to end what it has described as “the age of entitlement”. The package includes generous

9

Super rent-seekers demand more pork

By Leith van Onselen The Australian superannuation industry appears to be lobbying for the indexation of superannuation contribution limits, which would enable contributions to rise in relation to wages growth. From the AFR: …after taking over the Howard super model, in 2009, [Labor] halved the standard tax concessional contribution entitlement to the current $25,000 a

6

Hockey: Don’t expect Budget boost

By Leith van Onselen Treasurer Joe Hockey has today hosed-down suggestions that today’s stronger than expected GDP result will provide a material lift to the Budget, whilst reiterating his intentions to make expenditure cuts and place the Budget on the path to surplus. From The AFR: “Even though companies may be more profitable, it might

41

The rorts are all we have

I must say, I have to chuckle as I read the growing rhetorical movement in support of cutting back Budget excesses. John Freebairn and his highly admirable advice on how to fix the budget is an example: ”You can access your superannuation at age 60. You can access the age pension at age 65. The age

25

It’s time to end the rorts

By Leith van Onselen Melbourne University economics Professor and tax expert, John Freebairn, has given a great interview to The Age arguing that it’s time to remove the tax rorts around superannuation, negative gearing, and the family home. According to Freebairn, the first “rort” requiring reform is raising the access age to both superannuation and

7

Budget still deteriorating

From Craig James at Comsec noting the monthly Finance update: Budget deficit: In the year to December, the budget deficit stood at $26,957 million (around 1.7 per cent of GDP), the lowest calendar year deficit in five years. The government projects a deficit of $46,989 million in 2013/14. What do the figures show? • The

36

To tax or not to tax

By Leith van Onselen Warwick Smith, a research economist at the University of Melbourne, has published an interesting article in The Age today claiming that the Government’s focus on small government and expenditure cuts are ill-founded, and instead Australia should look to increase its tax take to fund essential social services: Joe Hockey has been

41

Pork weighing on Abbott’s fork

By Leith van Onselen The Abbott Government is once again defending claims of inconsistency around entitlements and welfare following yesterday’s announcement of farm aid and revelations that a lobbyist for the food industry was behind the $16 million subsidy provided to the Cadbury factory in Hobart. Under the $320 million farm aid scheme, farmers will

18

How to tax for growth

By Leith van Onselen The Business Council of Australia (BCA) has called for a shifting of Australia’s tax base away from personal, company and inefficient indirect taxes, towards more efficient taxes like the GST. From The Australian: The government is relying too heavily on personal and company income taxes. Individual taxes will reach a 17-year

46

BCA puts grey gouge on Budget chopping block

By Leith van Onselen My repeated calls for the Government to seriously tackle Australia’s ballooning retiree entitlements has received a major lift, with the influential Business Council of Australia (BCA) – the backbone of the Government’s Commission of Audit – calling to tighten the age and asset requirements for the aged pension and entitlements of

28

Coalition pushes aged pension reform to next term

By Leith van Onselen Treasurer Joe Hockey has again flagged an increase in the eligibility age of the aged pension, citing that increased life expectancy has made current arrangements unsustainable: Speaking at the start of Saturday’s G20 finance minister’s meeting in Sydney, he said an ageing population and longer life expectancy was common to most

35

Will Abbott’s health changes lower costs?

By Leith van Onselen Health Minister, Peter Dutton, yesterday flagged major changes to Medicare in order to reign-in costs. From the AFR: “I want to start a national conversation about modernising and strengthening Medicare and helping to heal our health system”… Australia’s health system, currently on an “unsustainable path”, is set to be overhauled as

13

“Rigged” Commission of Audit should be broadened

By Leith van Onselen The Chairman of a Senate committee, dominated by Labor and Greens representatives, has accused the Government’s Commission of Audit of being “rigged”, following the release of an interim report yesterday. From the Canberra Times: “The Abbott government has constructed very narrow terms of reference for the commission and hand-picked ideological allies

74

Public servants face three-year pay freeze

By Leith van Onselen The Abbott Government has today signaled that it will crack-down on public sector wages and conditions, with employees to be offered the choice of a three-year wages freeze or the loss of entitlements. From the Canberra Times: Australia’s 165,000 federal bureaucrats will face a choice of zero pay rises for three

37

Grey gouge goes nuclear

By Leith van Onselen Prime Minister Abbott last week warned the electorate about upcoming cuts to entitlements in this year’s Budget, claiming that “everyone” had to live within their means: “Everyone has to live within their means, whether it’s a company, whether it’s a family, whether it’s an individual, whether it’s a government. And that’s what

29

Is the diesel rebate really a subsidy?

By Leith van Onselen Earlier this month, I wrote an article questioning whether the Government should abolish the diesel fuel rebate, arguing that it seemed at odds for a Government that has taken a hard line on subsidies, corporate welfare and the end of the age of entitlement. To recap, the diesel rebate, which allows

5

Rupert punches hole in budget

From the SMH blog: Rupert Murdoch’s News Corp has blown an $880 million hole in the federal budget after winning a long-running battle with the Tax Office over deductions. The ATO had refused to allow the deduction, which relates to a 1989 restructure within Mr Murdoch’s media empire in which no money changed hands. News Corp defeated

51

Can’t bail cars but gunna save tanks, mates!

By Leith van Onselen While the Abbott Government talks tough on welfare and entitlements, it continues to take contradictory positions that risk undermining its legitimacy. In addition to providing taxpayer support to Qantas and Tasmanian firms Huon and Cadbury, the Coalition has reportedly ear-marked tens-of-billions of taxpayer dollars to local defence manufacturing, when high quality