Gillard Presses RBA for Interest-Rate Cut Amid Poll Slump

Australian Prime Minister Julia Gillard pressed the nation’s central bank to reduce the highest interest rates among major developed nations, saying an easing would support businesses outside the booming resource industry.

Gillard, whose government trailed the opposition Liberal- National party by 19 percentage points in a Newspoll published this week, has pledged to end four years of budget deficits in the fiscal year that begins July 1 as she seeks to bolster her economic record.

“A surplus is a fundamental economic imperative,” Gillard said in a speech today in Perth. “We can give the Reserve Bank room to move on monetary policy if it chooses to, knowing that an interest rate reduction is good for families and business.”

The government is planning the biggest spending reduction as a proportion of gross domestic product in at least 40 years as it drives to return the budget to surplus even as tax revenue falls. Central bank Governor Glenn Stevens signaled this month he may end a pause in rate cuts as soon as next month if weaker- than-forecast growth slows inflation.

“Should the RBA consider it appropriate to change the cash rate, this could deliver widespread benefits for households and business,” Gillard said in the speech. “A number of sectors of the economy most under strain are arguably more sensitive to interest rates.”

Rate Differential

Australia’s 4.25 percent benchmark rate is higher than the near-zero levels in the U.S. and Europe -- a differential that has helped buoy the local currency. The so-called Aussie has been above parity with the U.S. dollar for almost four months.

Australia’s economy is driven by a mining boom predicted to last decades as the urbanization of hundreds of millions of people in China and India increases demand for iron ore, coal and liquefied natural gas. In contrast, tourism, manufacturing and retailer industries have weakened under a currency that has risen 43 percent in the past three years.

The government is “writing a prescription for how to take a mining boom and turn it into an opportunity boom, something we’ve never managed to do in this country before,” Gillard said. “All four of our previous big mining booms ended poorly - some in recession, others with little lasting benefit to show. This time it must and will be different.”

The weakness in non-resource industries has prompted calls for a delay in the return to surplus and for the central bank to lower rates.

Rate Room

“There is plenty of room for the RBA to move further if need be, and to all those calling for rate cuts, you should be calling for a surplus -- not opposing one,” Gillard said.

The prime minister said running a budget surplus “lies at the very heart” of good economic management.

“I find myself in respectful disagreement with every commentator and economist who says otherwise, and in furious agreement with those who see the need,” she said.

Australia’s underlying cash balance for the year to Feb. 29 was a deficit of A$29.4 billion ($30.5 billion), compared with a forecast made in November of a A$27.5 billion gap.

“The government shouldn’t be pressuring the central bank on monetary policy, which is well run; instead it needs to focus on its own task of managing spending,” said Matthew Circosta, an economist at Moody’s Analytics in Sydney. “There are big question marks over whether the government will actually manage to return the budget to surplus next fiscal year as recent history has seen it fail to meet fiscal estimates.”

Economic Integrity

Gillard has staked her government’s economic integrity on delivering a budget surplus. Her strategy has been threatened by global pressures including China’s economic growth slowdown, Europe’s debt crisis and elevated unemployment in the U.S.

Australia’s first female leader has also been forced to fend off a leadership challenge from predecessor Kevin Rudd.

Support for the governing Labor party is hovering near a record low ahead of elections required by the end of next year.

At 29 percent, Labor trails Tony Abbott’s Liberal National coalition on 48 percent, according to a Newspoll published in the Australian newspaper on April 17.

The survey of 1,205 people, conducted April 13-15, had a margin of error of plus or minus 3 percentage points. Support for Labor hit a record low of 26 percent in a Newspoll taken on Sept. 16-18 last year.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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