By Leith van Onselen After spending many months warning of a fiscal emergency and the need for deep Budget cuts, Prime Minister Abbott has now taken the contradictory position of flagging income tax cuts in the Coalition’s second term: TONY Abbott has raised the prospect of tax cuts after the next election, delivering a prosperity
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 AFR continues to target Australia’s tax lurks, arguing that tax concessions on superannuation and property could cost the Budget $300 billion in revenue foregone over the next three years, and are undermining the fairness of the tax system: Updated forecasts from Treasury in the federal budget papers show the capital
By Leith van Onselen The AFR’s Agnes King has written a ripper article highlighting the egregious nature of Australia’s superannuation system, which has increasingly become a mechanism for richer older people to avoid paying tax, rather than a genuine means for Australians to pay for their own retirement and avoid drawing on the Aged Pension:
Cross-posted from David Collyer at Prosper Australia Sometimes, through the smoke and fireworks of the national debate a political commentator sees the path forward and points the way. Today in the Australian Financial Review, Alan Mitchell takes a far-sighted approach to the crisis provoked by the Abbott government in its attempt to raise and broaden
Can you sense it? Chaos is again engulfing Australia’s political economy. It’s moving fast, faster than politicians can contain it. It’s a mixture of dying media interests desperate to carve out a partisan niche, a confused and spoiled polity that has been systematically lied to, a political class that is equal portions political bastardry and
By Leith van Onselen With the Budget lifting the Aged Pension access age to 70 by 2035, affecting those born after 1965, debate has now shifted to the efficacy of Australia’s superannuation system, which allows retirees born before 1 July 1960 to access their super at age 55, and those born after 30 June 1964
Cross-posted from The Conversation This past Tuesday was another bad day for Australian federalism: the Abbott government’s first budget announced the axing of the COAG Reform Council and the withdrawal of a promised A$80 billion from health and education funding to the states. The Reform Council represented an important and genuinely innovative development in Commonwealth–State
By Leith van Onselen Federal Labor are a shemozzle. After opposing nearly all savings from the Budget, leader Bill Shorten has flagged that it would oppose muted reforms to superannuation as well. From The Guardian: Joe Hockey has called for a national conversation on increasing the age at which people can have access to their
Ah…Australiana, long on opinion, short on sense. From the uber optimists at Crikey: Standard & Poor’s is the firm that downgraded the United States government from triple-A in 2011, with the rationale that the gridlock and brinkmanship in the US Congress over the budget had undermined “the effectiveness, stability, and predictability of American policymaking and
By Leith van Onselen Support for reforming the GST continues to grow, with senior Coalition senator, Ian Macdonald, breaking the cone of silence and declaring his support for broadening the tax’s base to include items such as fresh food, education and some utilities: ”I will never support an increase in the GST but I think
By Leith van Onselen It seems all opposition parties are intent to follow Tony Abbott’s “Dr No” example in opposition and oppose nearly all attempts at reform. In last week’s Budget reply speech, Federal Labor leader, Bill Shorten, declared that Labor would oppose nearly all significant measures, including changes to university fees, the Medicare co-payment,
By Catherine Cashmore, a market analyst, journalist, and policy thinker, with extensive industry experience in all aspects relating to property. Follow Catherine on Twitter or via her Blog. Last week, Joe Hockey stood up in front of Parliament and on behalf of the Abbot administration, announced: ”The age of entitlement is over. It has to
While the Budget horse trading goes on, S&P senior analyst Craig Michaels has appeared at the AFR to throw cold water upon everyone: “We’re looking to see the government improve budget performance over the next few years…sizeable budget deficits were considered acceptable at the political and the community level then we might reassess, certainly, government
Cross-posted from The Conversation The states have some justification in being annoyed about being stripped of $80 billion worth of federal funding for health and education funding. These programs were negotiated on the basis of shared costs, only to have Canberra unilaterally limit its commitment. It now leaves the states to deal with any funding
By Leith van Onselen Over the weekend, World Vision CEO, Reverend Tim Costello, backed broadening the base of the GST to food, education and utilities, arguing that some of the additional $15 billion raised could be used to compensate the poor, overcoming concerns about regressivity. From The Guardian: Costello said a “mature” discussion was needed
Steve Keen continues his recent good use of sectoral balances analysis today to make sense of Clive Palmer after the latter noted that: …Our debt at the moment is probably around about $300 billion so that’s… about two months of our activity. Is your personal debt less than two months of your activity? That’s what
From Peter Martin: Information withheld from the budget shows high income couples may suffer scarcely at all while low income families on benefits could lose as much as 10 per cent of their incomes. The information, normally included in the budget, calls into question the Treasurer’s claim that “everyone is being asked to make a
From the SMH: The federal budget appears to have a gaping hole: it has failed to set aside enough funds for what is likely to be a record public sector redundancy bill. Despite outlining the most ambitious job-shedding program in 15 years, the Abbott government has assumed most staff will leave of their own accord
By Leith van Onselen Liberal elders, former Prime Minister John Howard, and former Victorian Premier, Jeff Kennett, have thrown their weight behind raising and/or broadening the GST. According to Howard: It was “overwhelmingly sensible” to have a broader-based GST, he said. The GST had been introduced in an “imperfect form” because Labor and the Democrats
By Leith van Onselen The AFR is reporting this morning that Australia’s state governments have rejected calls to release cost-benefit analysis of new road projects, in a bid to increase transparency over infrastructure decisions and improve the quality of investment: None of the projects receiving the cash has been identified as a priority by the
By Leith van Onselen Federal Labor leader, Bill Shorten, seems intent to follow Tony Abbott’s “Dr No” example in opposition and oppose nearly all attempts at reform. In his Budget reply speech last night, Shorten declared the Abbott Government’s first Budget “a Budget of broken promises” and declared that Labor would oppose nearly all significant
The Budget’s proposed $7 GP co-payment fee seems quite benign to many people. After all, if you are genuinely sick or concerned about your health, why would $7 make a difference? But there simply is no logic behind it, and the more you think about it, the more twisted any possible logic becomes. For example,
By Leith van Onselen Chris Richardson, from Deloitte Access Economics, has written an appraisal of the Federal Budget, which pretty much perfectly reflects my own views: Some of the specifics were undoubtedly tough – Australia is not currently doing enough for our unemployed, and this budget will add to their burdens, especially for the young. That’s
The boys at Business Spectator are bearing-up something chronic on housing this morning. Callam Pickering sees the peak: …dwelling price growth appears to have hit a hurdle, with nominal prices down 0.5 per cent in May to date. Prices in Melbourne are now 2.5 per cent off their March peak. Perth prices haven’t grown since
It’s not an especially encouraging sign when the day after the Budget the Prime Minister is forced to roll out his biggest cannon: AN election fight looms over the federal budget as Tony Abbott demands the Senate pass his economic agenda, despite a furious response to sweeping welfare reforms and school funding cuts. Laying out
By Leith van Onselen After taking office, the Abbott Government stated that it would not pursue an increase in the rate of GST, or broaden its base, unless called upon by the states. This week’s Federal Budget, which reduced earmarked funding to the states for hospitals and schools by $80 billion between 2017-18 and 2024-25,
The first post-Budget poll from Roy Morgan is not happy in terms of “what does it does it do for me?”: A special combined Roy Morgan Business Pulse and Roy Morgan Consumer Pulse survey conducted today (May 14, 2014) shows large majorities of both Australian consumers (88%) and businesses (74%) overwhelmingly feel last night’s Federal
By Leith van Onselen In last night’s Budget speech, Treasurer Hockey took the bold move of placing the Aged Pension on the reform agenda, announcing less generous indexing arrangements, and tighter means testing of the Commonwealth Seniors Health Card by including untaxed superannuation income in the income test: We promised at the last election not
A comment from one Chad Padowitz of Wingate Asset Management has caught my eye. From the SMH blog: Offshore investors are likely to question whether it was necessary for Treasurer Joe Hockey to deliver such a harsh budget, given the economy is just picking up and confidence remains fragile, say investment experts. “Foreign observers may