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.


The new Senate is a disaster for tax reform

Cross-posted from The Conversation: It’s unlikely “The Political Sayings of Malcolm Fraser” is a well-thumbed volume in Tony Abbott’s library. Yet this week, in the wake of the Senate throwing his government’s budget plans into disarray, as well as the repeal of the carbon tax and financial planning industry reforms, you’d have to think one


More doubts over ACT light rail pork

By Leith van Onselen The gloss continues to come off the ACT light rail project, with the Canberra Times reporting that the Tuggeranong Council, located deep in the city’s south, has voted to oppose the light rail line connecting Gungahlin in the north and Civic, because it does not believe that residents located far away from


Palmer scatter gun Swiss cheeses Budget

By Leith van Onselen Clive Palmer’s Palmer United Party (PUP) is proving to be a major thorn in the side of the Abbott Government. After vowing to oppose virtually every significant measure in the Budget, including “the imposition of a debt tax, huge cuts to public sector jobs, increased health and education costs, [and] ripping


Milne under pressure over fuel tax opposition

By Leith van Onselen The Greens’ hypocritical backflip over the Budget’s re-indexation of fuel excise, which saw the party shift its official position from supporting the measure to opposing it unless the funds were spent on public transport, continues to divide the party, with The Canberra Times reporting that the Greens’ New South Wales branch


Abbott implements new spin branch

By Leith van Onselen When in opposition, the Coalition often lambasted the former Labor Government for wasting taxpayer’s dollars on a battalion of communications workers and spin doctors. Yet, as reported in the Canberra Times over the weekend, the Abbott Government appears to have resorted to the same script, creating a new $4.3 million ‘‘Strategic


Is the “efficiency dividend” efficient?

Cross-posted from The Conversation: Every now and again in public policy debates a consensus emerges on some particular point among policymakers, stakeholders and commentators. These moments are distressingly rare. It is even more distressing when the government ignores such consensus. Unfortunately, this is the case with the most significant attempt in the federal budget to


Government to target multinational tax dodgers

By Leith van Onselen The Abbott Government will move to close loopholes that allow multinational corporations to shift profits and losses across international jurisdiction to minimise their tax bills. The move comes after Fairfax media revealed that Swiss-based coal miner, Glencore, paid almost no company tax in Australia over the past three years, despite generating


Greens members revolt over fuel tax blockage

By Leith van Onselen The Greens’ hypocritical backflip over the Budget’s re-indexation of fuel excise, which saw the party shift its official position from supporting the measure to opposing it unless the funds were spent on public transport, has come back to bite, with Greens members reportedly in revolt. From The Canberra Times: NSW senator


Australia’s tax structure is unsustainable

By Leith van Onselen Australian Treasury Secretary, Dr Martin Parkinson, delivered a speech yesterday claiming that Australia’s tax system is unsustainable and arguing for comprehensive tax reform. First, Dr Parkinson outlined the medium to long-term pressures facing the Budget, namely the falling terms-of-trade and the ageing population: …we are now at a critical point in


No Maurice, the Budget doesn’t save the children

By Leith van Onselen Head of the Prime Minister’s Economic Advisory Council, Maurice Newman, has penned a fascinating piece in The Australian today, arguing that the Budget measures must pass “for the sake of our children”: …baby boomers (those born between 1946 and 1964) and their cousins loudly resist any moves to crimp their lifestyle, content


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


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


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


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


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


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.


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


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


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


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


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


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