By Leith van Onselen Victoria’s last major government owned enterprise, The Port of Melbourne, is set to be sold no matter which party – Labor or Liberal – wins the upcoming election, with the proceeds to be used to fund much needed infrastructure investment. Under Labor’s proposed plan, the Port would be sold as a
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 Consumer Health Forum (CHF) has reportedly slammed the Federal Government’s proposed $6.50 co-payment on GP services, claiming that it would unfairly disadvantage vulnerable members of the community: The introduction of a fee to see the doctor would hit the poor and chronically ill hardest and would be unlikely to generate
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
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
By Leith van Onselen The Australian’s Adam Creighton has written a great piece today on the need for widespread retirement policy reform, which includes lifting the age of access to superannuation so that it aligns with the Aged Pension: The incidence of retirement increases by about 150 per cent for workers aged 60 compared to
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
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
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
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
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
By Leith van Onselen In a welcome development, Treasurer Joe Hockey has flagged major changes to the Aged Pension, stating that failure to reform would be akin to “intergenerational theft”. From the AFR: [Hockey] noted the aged pension, introduced in the early 1900s when life expectancy was 55 years, was now servicing an expectancy of
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
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
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
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
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
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
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
Cross-posted from The Conversation: As the Abbott government’s Commission of Audit busily scours the globe for answers to our fiscal woes, where in the world will it look? My tip is that it will dwell with the usual suspects: the UK, the United States, good old New Zealand, and maybe Canada, at a stretch. Expect
By Leith van Onselen Treasurer Joe Hockey has given more mixed messages on entitlements today, defending fringe benefit concessions on company cars: Despite his concerns about mounting government debt, Mr Hockey dismissed the idea of reintroducing Labor’s plan to save the budget $1.8 billion by tightening the rules on tax benefits for salary-sacrificed cars. The Abbott
By Leith van Onselen Prime minister Abbott appears to be softening-up the electorate for cuts to entitlements in this year’s Federal Budget, claiming that “everyone” had to live within their means. From The Australian: As the government heralds the end of an “age of entitlement” in federal spending, the Prime Minister acknowledged that individual benefits
By Leith van Onselen Analysis released today by KPMG research shows that Australia’s 30% corporate tax rate and 45% top marginal tax rate are well above the OECD average of 25.3% and 41.5% respectively, whereas indirect taxes, like the GST, are well below the OECD average (see below chart). One of the key reasons behind
By Leith van Onselen The AFR’s Laura Tingle published an long article over the weekend analysing the politics surrounding the “Age of Entitlement”. Let’s take a look at the key arguments: The Prime Minister and Treasurer have made it clear that when they talk about the need to reset individuals’ expectations of entitlement from government
By Leith van Onselen In all the talk about tackling corporate welfare, tax concessions granted to Australian companies are yet to gain much attention from the Government, despite their significant cost to the Australian Budget. One of the largest tax concessions is the diesel fuel rebate, which allows eligible companies to claim a reduced rate
Australian economics’ number one bull, Stephen “Kouk” Koukoulas , has written a snappy and fascinating take on the next few years of Budget politics that is worth a look: On 12 May 2015, Treasurer Joe Hockey will deliver his second budget and in doing so, he will announce that the budget is back on track, the
Joe Hockey gave another of his end of entitlement speeches today, which isn’t really worth repeating but this line is, from the AFR: …”the structural position of our budget is unsustainable…We now find we are not able to finance projected growth in government spending from our existing tax base…This means that, in the absence of
By Leith van Onselen SPC Ardmona has backed-up Liberal backbencher, Sharman Stone’s, claim that the Prime Minister and Treasurer are “lying” about SPC Ardmona’s “overly generous” workplace agreements, which the Government has used to justify not providing the company with $25 million in co-investment funds so that it can modernise and re-tool its plant. From
By Leith van Onselen Paul Howes has joined the attack on aged entitlements, questioning why asset rich home owning pensioners should be eligible for the Aged Pension by virtue of the owner-occupied residence being excluded from means testing. From the AFR: The major parties’ unity ticket – that the age pension be taken off the
Cross-posted from The Conversation: Ford and Holden gone. SPC Ardmona in jeopardy. Toyota under threat. The Productivity Commission’s (PC) position paper on automotive industry support fires a clear shot across the bows of the manufacturing industry. No industry sector can consider itself an untouchable sacred cow, strategic asset or Aussie icon. No industry is indispensable.