Australia govt plans surplus budget to bolster image with voters
* Budget surplus seen aimed at politics, not economy
* Gillard keen to shore up economic credentials
* Govt hit by scandals, support at record low
* Need for surplus questioned as central bank eases
By James Grubel
CANBERRA, May 8 (Reuters) - Australia's government will map out its plan for a surplus budget on Tuesday as it aims to shore up its economic credentials with voters and shift attention away from scandals that threaten Prime Minister Julia Gillard's grip on power.
Economists have questioned whether a surplus is needed, when the central bank has just eased rates and cut growth forecasts. And spending cuts will likely be accompanied by cash payments for the low paid, to help avoid the kind of anti-austerity backlash that saw voters in France and Greece abandon ruling parties at weekend elections.
But Gillard is keen to bolster her image, with opinion polls showing government support near record lows around 27 percent and that the conservative opposition would easily win an early election, although the next election is not due until late 2013.
"We are coming back to a modest surplus in 12/13, building those surpluses over time because we have low unemployment, we have solid growth, we have a very big investment pipeline, we have contained inflation," Treasurer Wayne Swan told reporters on Tuesday.
He said the budget would help Australia to retain its AAA credit rating from all three major ratings agencies, and would give Australia's central bank room for further rate cuts if needed after last week's surprise 50 basis points easing.
Swan is set to announce a surplus of around A$1.5 billion ($1.53 billion) for the year to June 30, 2013, after running up record deficits to stimulate the economy and help Australia avoid recession after the 2008 global downturn.
Australia's economy has weathered the downturn better than most other developed nations, as strong demand from China powered a resources boom, while any Chinese slowdown would pose the greatest risk to its economic strength.
But Gillard's minority government is highly unpopular and her one-seat majority relies on a lawmaker who has been expelled from the party and is under police investigation for suspected misuse of union funds for prostitutes and lavish entertainment.
The member of parliament, Craig Thomson, has denied any wrongdoing, but the opposition is demanding the government no longer accept his vote, which could force an early election.
A defiant Gillard on Monday told a meeting of government lawmakers she was determined to fight through the current scandals that have engulfed her administration, and that the budget would give the government a new platform to sell its policies.
"The government will deal and conquer the political pressures we are under," Gillard told the meeting.
The government in November forecast a A$37.1 billion deficit for the current year to June 30, and a small A$1.5 billion surplus for the year to June 30, 2013.
But Swan has warned that slower than expected economic growth had further hit tax revenue, forcing the government to find about A$5 billion in annual savings over the coming two years to achieve its planned surplus.
The surplus will be achieved through a series of budget cuts across government departments, and deferred spending, including a two year delay in ordering new Lockheed Martin F-35 Joint Strike Fighters, saving around A$2 billion.
But the government has said it will find more money to pay for dental health programmes, honouring a commitment to its parliamentary supporters the Greens, whose support will be crucial to pass the budget through parliament.
Economists, however, are doubtful of the need for the government to balance the budget, given the easing bias of the central bank and ongoing global economic uncertainty.
"Australia's public accounts, stretched as they are relative to recent history, are a beacon of fiscal virtue compared to those elsewhere, particularly in Europe. This makes the government's solemn pledge of a return to surplus as early as next year somewhat puzzling," said JP Morgan chief economist Stephen Walters.
"The return to surplus here is self-imposed, rather than a response to market stress, as is the case in Europe." ($1=A$0.981)
(Editing by Edmund Klamann)
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