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
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 Former federal Liberal Party Leader, John Hewson, has written a well-argued piece in The AFR today, joining the chorus to wind-back superannuation concessions granted to high income earners: It’s worth reconsidering concessions granted for super: they’re as costly as the age pension ($44.8 billion compared to $44.9 billion in age pension), but
By Leith van Onselen Following Janet Albrechtsen’s cracking article last week attacking Australia’s pharmacy racket, The AFR’s Tony Boyd has written an detailed article today outlining the rorts taking place across pharmacies, as well as some of the pressures for change: There was a time when joining Australia’s $12 billion retail pharmacy industry was a passport
By Leith van Onselen The AFR is reporting that the Coalition Government will proceed with its planned $6 co-payment for GP services, with the measure to be introduced in the upcoming Federal Budget: The Abbott government will introduce a mandatory $6 co-payment for all GP visits in the May budget, saving a collective $750 million over
By Leith van Onselen More analysis has emerged today of the growing tax burden likely to fall on middle-income Australians as bracket creep, brought about through inflation, pushes them into higher tax brackets. From The AFR: Single-income households on $70,000 to $75,000 will be worst hit by bracket creep, facing a 60 per cent increase
By Leith van Onselen Think tank, the Australia Institute, will release a new report today arguing that it is superannuation that is the major burden on the Federal Budget and calling for superannuation concessions, which overwhelmingly benefit the wealthy, to be scrapped in favour of a non-means tested Aged Pension. From WA Today: Four in
From the AFR: The Reserve Bank of Australia’s move to a “neutral bias” on monetary policy has angered the Abbott government, which believes any upward pressure on the dollar makes economic management in the next two to three years more difficult. The central bank has been informed directly of Treasurer Joe Hockey’s displeasure. The Reserve
By Leith van Onselen While driving home from the swimming pool on Tuesday night, I listened to an ABC radio interview featuring former leader of the National Party, Tim Fischer, alongside Beyond Zero Emissions’ Gerard Drewe, lamenting how the proposed second Sydney airport would lessen the prospect of building a high speed rail line linking
By Leith van Onselen The Australian’s Particia Karvelas has produced a good article today explaining why making childcare tax deductible and removing the $7,500 cap, as proposed by several submissions to the Productivity Commission inquiry into childcare, would be a bad deal for lower-to-middle income families: The chief executive of advocacy group Early Childhood Australia,
By Leith van Onselen The Australian has published a neat article today citing Parliamentary Budget Office (PBO) analysis warning of big rises in personal income taxes unless the Government embarks on widespread tax reform: PERSONAL income tax is the only prospective source of revenue growth for the federal government, with all other major taxes either
By Leith van Onselen The AFR is reporting today that Health Minister, Peter Dutton, is planning major changes to Medicare in order to reign-in costs, including introducing a co-payment on GP and emergency hospital services, as well as introducing “private sector efficiencies” into the public hospital system and greater private health insurance involvement in chronically
By Leith van Onselen The Coalition’s vow to “end the age of entitlement” has taken a serious hit, with Prime Minister Abbott seemingly ruling-out making changes to Aged Pension arrangements until after the next federal election. From The Australian: “If there is one lesson to be learned from the political quagmire that the former government
By Leith van Onselen The Canberra Times has published an article today on the growing number of federal public servants that have been classified as “excess” to requirement and are being paid to effectively turn up to work and do nothing: More than 400 federal public servants are languishing in employment limbo after they lost
By Leith van Onselen It seems most groups have resigned themselves to the fact that there will be cutbacks to the Aged Pension in this year’s Budget. Instead of opposing reform outright, focus appears to have shifted to ensuring that cuts are targeted at wealthier retirees. From The Australian: WELFARE groups have called on Tony
By Leith van Onselen Business Day yesterday has an article citing PwC research, which claimed that average income earners will soon face a big jump in income taxes as bracket creep, brought about through inflation, pushes them into higher tax brackets: People earning up to $80,000 will soon face tax rates of up to 40
Treasurer Joe Hockey has grabbed the MSM by the scruff of the neck today. The AFR is typical: Treasurer Joe Hockey has warned that no group will be safe from cuts in the May budget as he extended his warnings about age pension changes to possible pension rate cuts and explicit warnings of tighter assets
By Leith van Onselen The AFR has this afternoon reported that Chief executive of National Seniors, Michael O’Neill, has slammed rumoured changes to the Aged Pension, claiming that raising the pension age would backfire as a Budget savings measure, since older Australians would simply shift to Newstart or the disability pension. While this might be
By Leith van Onselen ABC’s The 7.30 Report ran an interesting segment last night on the growing cost of childcare, which is reportedly crimping labour force participation amongst women: More than a quarter of a million Australians who say they’d like to be in paid work are choosing to stay at home and look after
By Leith van Onselen Treasurer Joe Hockey has today warned that the Government can no longer ignore Australia’s ageing tsunami and has flagged an increase in the access age for the Aged Pension and tighter means testing, with an announcement possibly as early as next month’s Budget. From The AFR: Mr Hockey issued the warning
By Leith van Onselen The Guardian’s Greg Jericho has written a well-reasoned article arguing that the Federal Government should seek to raise taxes in order to balance the Budget: Since the pre-election economic and fiscal outlook (Pefo) was issued, the expected level of government spending in the future has grown, while the expected level of
By Leith van Onselen Back in February, I noted how the Coalition had 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 last month, I reported how Defence Minister, David Johnston, was
From COMMSEC, the Department of Finance and Deregulation release the Government Financial Statements last week: The underlying budget deficit for the twelve months to February 2014 stood at $25,464 million, just 1.6 per cent of GDP. The government projects a deficit of $46,989 million in 2013/14. In February 2014 the monthly surplus was $6,903 million
By Leith van Onselen The Australian’s Judith Sloan warned over the weekend that payments to the Aged Pension will surge over coming decades, despite decades of compulsory superannuation: The big one [Budget expense] is the age pension, which will rise from 2.7 per cent of GDP to 3.9 per cent in 2050, based on projections
Cross-posted from The Conversation With eight months left on his contract, Treasury Secretary Martin Parkinson decided to jump into the GST debate on Wednesday night. In a speech to the Sydney Institute, Parkinson declared the federal budget could not return to surplus unless the tax mix became biased towards consumption taxes. That’s code for “raise
By Leith van Onselen Last week, I argued that Australia should emulate the state of Colorado in the US and legalise the sale of marijuana: …legalising marajuana makes a lot of sense. Sure, while it isn’t exactly be healthy, it has less harmful effects than alcohol. On any given Friday or Saturday night, the nation’s
By Leith van Onselen Reports have emerged that the Government is seriously considering reforming Australia’s negative gearing rules, by grandfathering arrangements for existing investors and potentially only allowing negative gearing on newly constructed dwellings. From SBS News: Government sources say one of the changes being considered by Treasury is the grandfathering of arrangements for existing
By Leith van Onselen As noted by Houses and Holes earlier, the University of Canberra National Centre for Social and Economic Modelling has released new analysis showing that in the absence of tax cuts, the effect of people being pushed into higher tax brackets because of inflation (“bracket creep”) would increase total personal income taxes
By Leith van Onselen Treasury Secretary Martin Parkinson’s defining speech at the Sydney Institute last night outlined in great detail 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 case for action on the expenditure side can
The ever-expanding black hole formerly known as the Budget significantly broadens its circumference today. From The Australian: SAVINGS of more than $60 billion a year will have to be found by 2023-24 for the Abbott government to reach its surplus target, according to the Commission of Audit, which presented a bleaker outlook for tax revenue
By Leith van Onselen The Conversation has today published an article by Scott Bowman, Vice-Chancellor and President at Central Queensland University, who advocates the government selling-off the $30 billion of outstanding HECS/HELP debts, arguing that it would get the Government out of a financial pickle without harming students: The cost of the national student loan