By Leith van Onselen Opposition Treasury spokesman, Chris Bowen, is set to propose a new plan that would remove responsibility over key economic forecasts in the Federal Budget from the Australian Treasury and instead grant these to the independent Parliamentary Budget Office (PBO). From ABC News: Mr Bowen will tell the National Press Club that
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 The Abbott Government will reportedly announce today that it will grant a Japanese company the contract to build 10 submarines, in the process shutting the door on South Australian builder ASC. From The AFR: The submarine contract is likely to go to a Japanese bid, which would be about half the
By Leith van Onselen The AFR is reporting today that the Abbott Government’s long-term goal to provide tax cuts to income earners is in jeopardy following the large hit to national income owing to the collapse in the iron ore price: Budget experts said weaker wages growth would pose a significant barrier to the Coalition
By Leith van Onselen After being smashed from pillar to post over his hare-brained scheme to allow first home buyers to access their superannuation savings to pay a house deposit (see here, here and here), independent Senator for South Australia, Nick Xenophon, has seemingly abandoned that proposal and produced a sensible list of alternative measures
By Leith van Onselen I had the privilege of attending the 123rd Annual Henry George Commemorative Dinner, hosted by Prosper Australia, which was held on Wednesday 3rd September 2014. This year’s dinner featured a compelling speech by Australian tax expert and economist, Professor John Freebairn, who tackled how to reform state taxes. In the speech,
By Leith van Onselen Former Howard Government minister, Peter Reith, over the weekend urged parliament to act decisively and early to wind-back generous tax concessions and benefits afforded to wealthier Australians, and not wait until the Budget and economy are in crisis. From The AFR: Mr Reith told The Australian Financial Review there was an
By Leith van Onselen The delusional iron ore forecasts underpinning the Western Australian Budget – which forecast an average spot price of $122.70 over 2014-15 and only minor downward adjustments in the out years – have come back to bite, with The Western Australian newspaper today reporting that the State Budget faces a $1.7 billion
By Leith van Onselen The Abbott Government has set to delay the planned increase in the superannuation guarantee – the amount that employers must contribute into employee’s super accounts – by three years in a bid to ease pressures on the Budget. From Peter Martin: Superannuation contributions at present are set to climb from 9.5
By Leith van Onselen Today, the price of a packet of cigarettes is scheduled to rise by between $1.12 and $2.81 due to the decisions of the former Rudd Government to raise the tobacco excise by 12.5%. Excise also will be increased under the normal twice-yearly indexation introduced 30 years ago by the Hawke government,
By Leith van Onselen The Productivity Commission’s (PC) report into Australia’s Automotive Manufacturing Industry recommends relaxing controls on so-called “grey” imports of second-hand cars, noting that Australian consumers are being fleeced, particularly when it comes to purchasing higher-end vehicles: It might be the case that some ‘premium’ vehicle segments (such as luxury European made motor
Cross-posted from The Conversation: The long-awaited cost-benefit analysis of the National Broadband Network suggests the days of politicians shooting from the hip with taxpayer dollars are numbered. As Labor’s NBN unfolds amid reviews and revelations, it’s apparent the NBN was a political move based on romantic notions of policy-making ending in Labor’s electoral defeat in
By Leith van Onselen The AFR has revealed today that Prime Minister Tony Abbott has finally conceded to the Coalition party room that he needs to give ground on paid parental leave (PPL) if the policy is ever to come to fruition: Coalition MPs are predicting Tony Abbott will water down his paid parental leave
By Leith van Onselen The Guardian’s Greg Jericho has written another well-argued piece calling for a fairer approach to retirement policy reform: While there is a need to address the issue of the ageing population, and the increasing cost of the age pension it needs to be done in both a sustainable and equitable manner.
By Leith van Onselen The Australian’s David Uren has produced some good analysis today of the growing tax burden likely to fall on lower-income Australians as bracket creep, brought about through inflation, pushes them into higher tax brackets and raises their average tax rate: ALLOWING inflation to push more personal income into higher tax brackets
By Leith van Onselen From Moody’s today comes news that Western Australia’s credit rating has been downgraded to to Aa1 from Aaa and the outlook changed to stable from negative (my emphasis): The ratings downgrade reflects the state’s ongoing deficit position, the deterioration in its debt metrics, and a growing risk that this trend may
By Leith van Onselen Education Minister, Christopher Pyne, has called on Australia’s university students to “get some perspective” on the Coalition’s planned changes to university fees and funding, claiming that the Government is “not exactly asking for their left kidney”. From The Guardian: On Thursday Pyne will introduce legislation to implement his plan to deregulate
By Leith van Onselen The Canberra Times is running an article today claiming that the taxpayer bill for federal public sector redundancies is likely to top $1 billion even before entitlements such as leave are paid: Analysis of 760 retrenchments across a number of Commonwealth employers since the federal election show the average redundant public
By Leith van Onselen The Parliamentary Budget Office (PBO) has issued another warning that that government spending would balloon to nearly $700 billion over the coming decade without reform. From The Australian: Warning of future economic shocks, the independent agency forecasts a rise in government spending from $384 billion to $682bn over the coming decade
By Leith van Onselen Tony Abbott has spoken-out against Treasury Secretary, Martin Parkinson’s, claim last night that the Government had failed to sell the case for tax reform, noting instead the following: “I’ve been saying on many occasions that tax reform starts with scrapping the carbon tax and scrapping the mining tax. It certainly doesn’t
By Leith van Onselen Australian Treasury Secretary, Martin Parkinson, has given an interesting speech to the ACT Young Economists Network, in which he once again highlighted that Australia’s existing tax structure is becoming increasingly narrow and how personal income taxes will rise dramatically via bracket creep as the once-in-a-century commodity price and mining investment booms
By Leith van Onselen Finance Minister, Mathias Cormann, has given an interview on 2UE radio where the proposed $20 billion Medical Research Fund was discussed (my emphasis): STUART BOCKING: Joe Hockey keeps telling us it is about safeguarding Medicare. But not a single cent of that extra $7 will find its way back into the
By Leith van Onselen It’s good to see the nation’s parasite industries feasting at the trough of the Queensland Government’s planned $30 billion of asset privatisations: If it was not for Campbell Newman’s Queensland government, our investment banks, law firms and accountants wouldn’t know what to do with themselves. Bankers, lawyers and accountants are in
By Leith van Onselen The lobby group representing older Australians, Council of the Ageing (COTA), will today launch a campaign against changes to indexing arrangements for the Aged Pension, which were announced in the May Budget. From The Australian: COTA Australia chief executive Ian Yates said the campaign, Hands Off The Pension, was in response
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
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