Australia slashes US$23.7 bn from budget

Australian Finance minister Wayne Swan Australia Tuesday vowed to be the first advanced nation to return to surplus after the financial crisis, slashing US$23.7 billion from its budget to counter natural disasters and revenue falls. Treasurer Wayne Swan said the economy, which avoided recession thanks in part to its booming resources sector, was well positioned despite the impact of massive summer floods, violent Cyclone Yasi and a ballooning deficit.
He said the Aus$22 billion in cuts, partially funded by tightening welfare payments and tax changes and delivered over five years, had been difficult but necessary for Australia to "get back in the black by 2012-13 light years ahead of the major advanced economies."
"The alternative, meandering back to surplus would compound the pressures in our economy and push up the cost of living for pensioners and working people," the treasurer said.
The budget forecasts reveal that the deficit for the current financial year has blown out from a projected Aus$41.5 billion to Aus$49.4 billion, but will shrink to Aus$22.6 billion in 2011-12 and tip to a surplus of Aus$3.5 billion in 2012-13.
Swan said the loss of revenues was partially due to the global slump.
"Losses built up during the global crisis are larger and lingering longer, contributing to reduced company taxes of Aus$8 billion in this budget over two years," he said.
"This overhang from the global financial crisis, along with a higher dollar and record mining investment and associated tax deductions, are all slowing revenue growth."
Swan said the floods that swamped coal-producing Queensland state in January and the destructive cyclone that followed also cost the economy resulting in Aus$9 billion in lost output and reducing real GDP growth by half of a percentage point in 2010-11.
"Combined with the impact of disasters in New Zealand and Japan, the hit becomes three-quarters of a percentage point this year pushing growth well below its long-term average," he said.
The budget plots real GDP growth for 2010-11 at 2.25 %, forecasting it to grow to 4.0 % in 2011-12 and 3.75 % the following year.
The belt-tightening accounting comes as resource-rich Australia stands to benefit from unprecedented investment in its minerals sector Aus$76 billion in 2011-12, driven by strong Asian demand for coal, iron ore and gas.
Swan said the government wanted to take full advantage of the rising power of Asia, adding that Australia stood to be a "prime beneficiary of tremendous economic growth" in the region.
But the mining boom, combined with a runaway Australian dollar, meant the economy was growing unevenly and would inevitably place pressure on prices, he added.
Australia, with its strong banking system and wealth of natural minerals, survived the financial crisis better than most and was the first major advanced economy to lift interest rates in its wake.
But with rates now at 4.75 %, and a currency that reached parity with the greenback in October, export industries such as manufacturing, tourism and education are suffering.
With unemployment at 4.9 %, pressure is also on the labour market, prompting the government to propose lifting skilled migration to regional areas by 16,000.
As the centre-left Labor government of Prime Minister Julia Gillard flails in opinion polls, Swan admitted the austere budget could prove unpopular.
"We don't take our savings decisions lightly, and we take no joy from making them," he said. "But we take comfort in knowing they are right and necessary to ensure we don't compound the pressures of the boom."