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.


Rort nation

One thing to bear in mind as we wend our way through the daily politics of the “tough” Budget over the next week is this: it is not really very tough at all. The one area of Budget largess that is most in need of reform, most corrupting to the economy, most inequitable to the


Beware the Audit Commission’s health rejig

By Leith van Onselen Business Spectator’s Callam Pickering has written another good post questioning the Commission of Audit’s (COA) recommendations that: 1) higher income earners take-out private health insurance for basic health services (instead of Medicare); and 2) introducing a $15 co-payment for all Medicare funded services (up to 15 services) and $7.50 per service


Labor to block pension rise, levy, Medicare shift

Nobody has been able to substantially and sustainably reform anything for ten years in Australia as special interests have mastered the political process. And, here we go again: …opposition families spokeswoman Jenny Macklin said it was a broken promise and Labor would not be supporting it. “The Prime Minister has no mandate to make changes


Hockey: Wind power “utterly offensive”

Our Treasurer has tendency towards bluster and today he’d done himself no favours. From the ABC: Federal Treasurer Joe Hockey says he finds wind turbines “utterly offensive”, but is powerless to close down the ones operating outside Canberra. Speaking to Macquarie Radio, Mr Hockey was being asked about whether the Government would target clean energy


Hockey confirms war on youth

From the SMH blog: The federal budget will lift the retirement age to 70 by 2035, Treasurer Joe Hockey will announce today. This date is almost 20 years earlier than the year 2053 as recommended by the government’s commission of audit released on Thursday. It will affect everyone born in 1965 and onwards. Presently, the retirement age is set to


Audit Commission declares war on young

By Leith van Onselen The Commission of Audit (COA) report, released yesterday, contained a raft of recommendations, the centerpiece of which were sweeping changes to Australia’s retirement system, including: lowering the indexation rate of the Aged Pension to 28% of Average Weekly Earnings (from 28% of Male Weekly Earnings currently); tightening means testing around the


The Audit Commission’s revenue blind spot

By Leith van Onselen The Commission of Audit’s (COA) report, released yesterday, notes that without reform to Australia’s tax and expenditure system, Australia “faces 16 consecutive years of budget deficits with net debt rising from $190 billion today to $440 billion by 2023-24″. Accordingly, its 86 recommendations are designed to save the Budget between $60 to


The elephant in the Audit Commission’s room

By Leith van Onselen In many ways, the Commission of Audit (COA) was half-baked, and destined to produce recommendations that missed gaping holes in Australia’s taxation system. The problem arose because the COA’s terms of reference explicitly mentioned direct government expenditure, such as grants and transfer payments, but excluded Australia’s world-beating tax expenditures – effectively “expenditure


The Commission of Audit at a glance

Cross-posted from The Conversation Heavy on warnings that “business as usual” will leave future generations of Australians saddled with excessive debt, the National Commission of Audit has delivered the government a comprehensive platform for deep spending cuts and significant policy reform. The Commission, which focused its recommendations on the 15 largest and fastest growing government


Baby boomers to win from retirement reform

By Leith van Onselen The Commission of Audit (COA) has released its much anticipated report, which recommends some sweeping changes to Australia’s retirement system, although baby boomers would be spared any Budget pain (surprise, surprise!). Without changes to Australia’s tax and expenditure system, the COA claims that Australia “faces 16 consecutive years of budget deficits with


Should the public sector be slashed?

By Leith van Onselen The Canberra Times is today reporting (here and here) about massive changes flagged in the Commission of Audit, which has recommended that whole agencies be abolished, privatised, or devolved to the states, in what would be “the biggest reworking of the federation ever undertaken”. According to one article, the public service


Huge negative gearing losses revealed

By Leith van Onselen The Australian Taxation Office (ATO) has just released its 2011-12 Taxation Statistics, which once again revealed Australia is a nation of loss-making landlords, with 15% of taxpayers owning rental properties declaring a combined $7.86 billion of losses. According to the ATO, there were 1,895,775 property investors in Australia in 2011-12, up


No Alan, more income tax is not the answer

By Leith van Onselen Business Spectator’s Alan Kohler has written a curious piece today supporting the Abbott Government’s rumoured Budget deficit levy: The deficit levy…should become a permanent tax increase. Australia’s tax revenue is too low for the level of government spending that’s locked in… Indirect taxes (GST and excise) are growing more slowly than


Budget debt levy “electoral suicide”

By Leith van Onselen Another war is brewing in the Coalition party room, with senior members of Government declaring Tony Abbott’s proposed Budget debt levy “electoral suicide”. From The Canberra Times: Senior Liberals have described plans for a possible deficit tax in the budget as “electoral suicide”. Some talked of a party-room revolt and one warned


PPL: Abbott’s mother of all fiscal mistakes

By Leith van Onselen The Business Spectator echo chamber is spreading the good word again today with Callam Pickering taking up my concerns about Tony Abbott’s paid parental leave (PPL), whose huge cost will do little to boost workforce participation, but will come at the expense of worthwhile welfare programs for the poor and increased taxes: If


Everybody knows paid parental leave is a dud

By Leith van Onselen The lovechild of Prime Minister Tony Abbott, his $5.5 billion a year Paid Parental Leave (PPL) Scheme, is being condemned from every corner. Last month, 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


In defence of the welfare state

Cross-posted from The Conversation As a tough federal budget round looms, there has been suggestions that the pension eligibility age could rise to 70, indexation of pensions could be changed, Family Tax Benefit Part B could be more tightly income-tested and eligibility for Disability Support Pension for younger recipients could be reviewed. While some of


Paul Keating’s super system is failing

By Leith van Onselen The AFR’s David Bassanese has written a good article today on the ever-expanding black hole that is Australia’s compulsory superannuation system, which is failing on almost every count and sucking the Budget dry: It is time Australian policymakers admitted their mistakes and faced facts: our unique system of privately run superannuation


Budget pain will not be healed by a debt levy

By Leith van Onselen Following Treasury Secretary, Martin Parkinson’s, defining speech at the Sydney Institute earlier this month detailing the stiff headwinds facing the Federal Budget, which is facing decades of heavy deficits without major reforms to taxes and expenditure, as well as rising productivity, the Australian Treasury has reportedly warned that the nation is facing


WA shows leadership on tax reform

By David Collyer, cross-posted from Prosper WA Treasurer Mike Nathan has heard the call from REIWA President David Airey to end Stamp Duty and fund this by removing exemptions from State Land Tax, according to today’s West Australian newspaper. I warmly welcomed Mr Airey’s comments yesterday because they rose above the traditional selfish tax-shifting nonsense


Hockey palms super reform to second term

By Leith van Onselen Being a Budget commentator is never dull. After expending significant effort this morning slamming the Government for failing to include Australia’s egregious superannuation concessions in its “war on entitlements”, Treasurer Joe Hockey has now flagged changes to superannuation and an increase in the preservation age, which will be taken to the


Holden, Ford subsidies to shift to tanks?

By Leith van Onselen The Abbott Government continues to take contradictory positions on industry support that risks undermining its legitimacy. After talking a tough on assistance to the car industry, and arguably hastening its demise, the Coalition has ear-marked tens-of-billions of taxpayer dollars to local defence manufacturing, including a $10 billion program for 700 locally produced