CANBERRA May 5 Australia's minority government
will hand down its first budget next Tuesday, with revenues hit
by natural disasters and a high Australian dollar and little
room to spend on populist policies to buy back falling support.
What revenues it does have to spend are heavily dependent on
China's insatiable demand for its natural resources.
With the Labor government trailing the opposition in opinion
polls, the budget is the latest test for Prime Minister Julia
Gillard, whose shaky grip on power relies on three independents
and a Green lawmaker for her one-seat majority.
"It is a crucial budget," said Monash University political
analyst Nick Economou. "The polls are looking really bad, but
the government can't spend and splurge."
"There's been a big hit to tax revenue, and the government
is still trying to convince voters they are good at managing the
economy. So the government is caught. It won't be the kind of
budget they'd like to deliver."
Though the economy is in its 20th year of expansion and with
a booming resource sector and huge Chinese demand, Treasurer
Wayne Swan has promised a tough budget, with a tight rein on
spending to ease mounting inflationary pressures and achieve a
promised 2012-13 surplus.
Australia's deficit and debt is small by international
comparisons, but its political parties are obsessed with
achieving and maintaining a surplus, aware that voters see
failure to do so as economic mismanagement.
GOVERNMENT SAFE, DESPITE TOUGH BUDGET
Australia was the only advanced nation to avoid recession
during the global financial crisis, thanks in large part to
exports of resources to China.
The government has committed to keep growth in spending to
two percent or less above inflation until it delivers a surplus
equal to one percent of gross domestic product.
Budget revenues this year have been hit by record summer
floods and a massive cyclone, which disrupted coal exports and
destroyed crucial infrastructure, and by a strong Australian
dollar which has hit a record high of $1.10 in the past
week, further eroding resource industry revenue and profits.
At the same time, Australia's unemployment rate continues to
fall towards full employment, with the government saying it
needs around 1.3 million new workers by mid 2016.
Swan has said the natural disasters, followed by the tsunami
in leading export destination Japan, would cut tax revenues by
at least A$4.5 billion this year, fuel inflation, and
temporarily cut economic growth by at least 0.5 percent.
But even if Swan delivers a very tough, and unpopular
budget, the minority Labor government is unlikely to fall.
Under their agreements with the government, the independents
and Greens have pledged not to block the budget, but that does
not prevent them from trying to negotiate any unpopular changes.
"It is more likely than not that parliament will run its
full (three-year) term, because the cross benchers have a vested
interest in government stability," said Economou.
BUDGET MADE IN CHINA
Economists expect the budget deficit to be around A$50
billion in the year to June 30 this year, compared to the
previous forecast of A$41.5 billion, and A$18-22 billion for
2011-12, compared to the previous forecast of A$12.3 billion,
before returning to a small surplus in 2012-13.
The deficit is expected to peak at less than 5 percent of
GDP in the current budget year, under half the U.S. shortfall.
Net government debt should peak at 14 or 15 percent, again a
drop in the ocean compared to the United States, UK and Japan.
"The budget comes with a 'made in China' stamp these days,"
said Deloitte Access economist Chris Richardson. "If China, and
hence commodity prices, stumble, then the budget will take a
He estimated tax revenue will be down A$6.4 billion this
year. The last official government forecast in November forecast
tax revenue of A$292 billion.
The budget's centrepiece will be a package to boost skills
and encourage people off welfare and into jobs to meet worker
shortages, particularly in the mining and aged care sectors.
But the two biggest challenges facing the government, a new
carbon tax on big polluters and a 30 percent tax on coal and
iron ore mines, will not be fully included in the budget
package, although mining tax revenues should be forecast.
The government hopes to finalise details of its carbon tax
by July and laws for the mining tax are likely to be finalised
and introduced to parliament by late May or early June.
(Editing by Michael Perry and Jonathan Thatcher)