Our Rolls-Royce budget can handle a flat tyre

Sun, 06 Apr 2014  |  


This article, written on behalf of Per Capita, first appeared on The Drum website:


Australia is in a fine budget position and the deficit isn't nearly as big an issue as some politicians would have you believe. Just ask the credit rating agencies, writes Stephen Koukoulas.

The budget debate in Australia is so pathetically inane that the fiscal blame game has reached a point where neither side of politics wants to take responsibility for Australia's triple-A rated fiscal settings.

This perverse situation shows up with the notion that debt and deficit are political poison rather than the medicine that, when used wisely, has delivered spectacular wealth-creating returns for the economy.

To an impartial observer, the argument of whose government debt is it, is akin to asking who is to blame for getting a flat tyre on a Rolls-Royce. Is it the driver, the builder of the road, the tyre manufacturer or the pesky interloper who dropped a couple of nails on the road?

In this case and in terms of Australia's budget position, it matters little because the budget position and economy are of Rolls-Royce quality and the job of fixing the fiscal flat tyre is straight-forward and a low order issue.

In considering the debate over debt and deficit, the view from those with no political axe to grind over Australia's budget position is enlightening. The credit rating agencies uniformly rated Australia's sovereign debt position triple-A at the end of 2011, clearly in the aftermath of the global financial crisis that took account of debt and deficit policy measures used by the government to avoid recession and cap the unemployment rate below 6 per cent.

That triple-A rating was maintained in the period up to and including the 2013 Budget delivered by Wayne Swan. The ratings agencies reiterated that superior credit rating during the election campaign when the pre-election fiscal outlook (PEFO) document was released by the Departments of Treasury and Finance.

But even more importantly than that, just three months after the election, Treasurer Joe Hockey and Finance Minister Mathias Cormann imposed a range of policy measures and economic parameter variations on the budget numbers. These were incorporated into the mid-year economic and fiscal outlook (MYEFO) and even the doubling of the budget deficit from $55 billion to $123 billion over the forward estimates did not alter the view of the ratings agencies that Australia's financial position was still triple-A with a stable outlook.

All of which means that even after Treasurer Hockey doubled the budget deficit in the MYEFO, the ratings agencies confirmed their assessment that Australia's fiscal settings are imperious.

That is as it should be given the fact that the budget deficits, on a worst case as outlined in MYEFO, are chicken feed at about 1 per cent of GDP from 2016-17 and beyond. On a best case and even without further significant spending cuts, are on a trajectory to surplus in a few year because of the stronger than expected economy.

What is important now in the lead into the budget on May 13 is for the Government to work out how best to tilt fiscal policy settings a little more towards budget surplus, do it fairly, equitably and without pulling the rug out from under the improving economic growth momentum that has been evident since the middle of 2013.

Not much more than a tilt is needed as the PEFO numbers showed that, with the economy growing near trend, surpluses would be the order of the day from 2016-17 and beyond. A tilt might be net savings of about 0.25 per cent of GDP per annum, which in 2014-15 terms, is about $4 billion. With the economy clearly stronger than assumed at the time of MYEFO, the automatic stabilisers are also working hard to kick the budget bottom line into surplus.

That is, of course, if the Coalition Government's spending plans don't blow the budget out of the water. A couple of big-ticket items are on Prime Minister Tony Abbott's agenda that have some budget risk attached. These are the incredibly expensive paid parental leave scheme, the infrastructure spend that is yet to be specified and the plan to lift defence spending to a huge 2 per cent of GDP.

The spend on these, in 2014-15 dollar terms, amounts to approximately $15 billion a year and more if the infrastructure spend is upsized. This is a massive spending spree that, unlike the stimulus measures during the global crisis in 2008 to 2010, are embedded into the structure of the budget.

In the meantime, Australia has some of the best budget settings in the world, with one of the lowest levels of government debt and a deficit problem that almost every other advanced economy would take in a moment.

It is a pity the Government is reluctant to embrace this quite fantastic economic news as it puts a higher ranking on political pointscoring than articulating the need for some spending adjustments and locking in the return to surplus as a simple task without too much economic pain attached to it.

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Is the Aussie economy slowdown good or bad news for you?

Mon, 04 Mar 2019

This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/aussie-economy-slowdown-good-bad-news-015353581.html 


Is the Aussie economy slowdown good or bad news for you?

Your economic well-being is undergoing some significant changes at the moment. Whether that is good or bad news depends on your home ownership status and intentions to buy, and the amount of money you have in invested in shares either directly or indirectly in your superannuation fund.

To the stock market first

Having been beaten down late last year, the Australian stock market has staged a powerful pick up. Compared with the low point in December, the ASX200 has risen over 12 per cent in two months. This is, quite clearly, great news for your superannuation balance and for your wealth if you own any shares directly.

The change in sentiment about interest rates and a solid profit reporting season has underpinned this jump in share prices and with US and local interest rates set to remain low or be lowered in the months ahead, share prices should continue to do well.

Falling house prices met with dismay and joy

From the perspective of personal finances, the news on falling house prices has been greeted with both dismay and joy. Home owners in Sydney Melbourne, Perth and Darwin and reeling under the weight of wealth destruction with prices down by between 10 and 25 per cent.

In Sydney, for example, that house that was valued at $1 million back in the middle of 2017 is now worth around $870,000, a drop of $130,000 in less than two years.


2019-20 budget will be 'problematic': here's why

Wed, 20 Feb 2019

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/2019-20-budget-will-problematic-heres-194957605.html 


2019-20 budget will be 'problematic': here's why

Word has it that the framing of the budget, due to be handed down by Treasurer Josh Frydenberg the day after April fools day (and around 6 weeks before the election), is more problematic than usual.

Problematic because there is some mixed news on the economy that will threaten the current forecast of a return to budget surplus in 2019-20.

Housing has gone into near free-fall, both in terms of prices and new dwelling approvals. This is bad news for GDP growth.  The unexpected severity of the housing slump is the key point that will see Treasury revise its forecasts for GDP growth, inflation and wages lower when the budget is handed down.

It will be impossible for Treasury to ignore the recent run of hard data, including the weakness in consumer spending and a generally downbeat tone in the recent economic news when it sets the economic parameters that will underpin its estimates of tax revenue and government spending and therefore whether the budget is in surplus or deficit.