Australia plans tough spending cuts to achieve budget surplus
2012-10-22 10:45:42
The Australian government on Monday said it plans to unveil a series of spending cuts to achieve its goal of returning to a budget surplus this year. The government, at the same time, slashed the economic growth forecasts amid weak global outlook.
In the latest Mid-Year Economic and Fiscal Outlook (MYEFO), the Treasury said the country will log a surplus of A$1.1 billion this year, down from its May forecast of A$1.5 billion.
The lower-than expected-surplus reflected a sharp fall in government tax revenue in 2012-13.
Releasing the MYEFO, Treasurer and Deputy Prime Minister Wayne Swan said the weaker global outlook and lower than expected commodity prices, along with the general easing of price pressures in the economy, are again slowing the recovery in tax revenue.
This is driving a further write-down in tax receipts of almost A$22 billion over the next four years, almost all from company tax and resource rent taxes.
The government lost A$160 billion tax receipts since the start of the financial crisis. It now estimates a write down of A$4 billion 2012-13 alone.
"Global volatility and substantial revenue write-downs have made returning the budget to surplus in 2012-13 much harder but the Government remains on track to deliver a surplus to help protect against global economic turbulence," the Treasurer said.
"Returning the budget to surplus also gives the Reserve Bank maximum flexibility to cut interest rates," he said. At the October meeting, the Reserve Bank of Australia slashed the cash rate by 25 basis points to 3.25 percent, continuing its easing cycle started in November last year.
Economists see another rate cut from the central bank by the end of this year.
The Treasury said today that the government intends to tighten health-care expenditure to save A$700 million over four years and cut down family support payments. The government is set to revise the way companies pay their taxes, moving from quarterly to monthly installments.
"The decisions taken in this MYEFO were difficult but critical at a time of falling revenues and ongoing global headwinds," Swan said.
The real gross domestic product is now forecast to grow at around 3 percent in the 2012-13, a downgrade of 0.25 percentage point since budget figures were released in May. The GDP is seen growing at the same pace in fiscal 2013-14.
"While global headwinds, a high dollar and changing consumer behavior are weighing on some sectors, the Australian economy is expected to outperform every major advanced economy this year and next, with growth underpinned by strong investment, strong growth in export volumes and solid growth in consumption," the Treasurer said.
Meanwhile, both headline and underlying inflation are expected to remain well contained over the forecast period, within the RBA's target band. The unemployment rate is forecast to remain low at 5.5 percent in 2012-13 and 2013-14.