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Gillard Seeks Australia Budget Surplus to Halt Poll Slide

Australian Prime Minister Julia Gillard plans to end four years of deficits in her government’s annual budget today, seeking to reverse a slide in opinion polls and strengthen its economic credentials.

The governing Labor party, which trails the opposition by 18 percentage points in the latest survey, says a return to surplus will give the central bank room to lower borrowing costs in a nation where almost 90 percent of mortgages have variable rates. Economists predict Australia’s unemployment rate last month rose to a seven-month high of 5.3 percent, according to the median forecast ahead of a report due May 10.

“By coming back to surplus, we give the Reserve Bank maximum flexibility to cut interest rates should they decide to do so independently of the government,” said Treasurer Wayne Swan, who will deliver the budget to parliament at about 7:30 p.m. in Canberra.

The nation’s first female prime minister, battling political scandals that threaten her minority government’s control of parliament, is aiming to use the budget to shore up Labor before elections due by November 2013. Gillard received a fillip on May 1, when the central bank lowered its benchmark rate, the highest among major economies, by half a percentage point, to 3.75 percent, following cuts in November and December.

The government may have to cut spending and other fiscal measures by the equivalent of about 2.5 percent of gross domestic product as it battles lower-than-expected tax revenue, according to Treasury data. Swan today estimated the revenue shortfall at A$150 billion ($153 billion) in the past five years.

‘Strongest Economies’

“Bringing the budget back to surplus, making sure our prosperity is fairly shared, and looking after the most vulnerable is what this budget is really about,” Swan said today. “In uncertain times we live in one of the strongest economies in the world.”

The government has relied on the support of independent lawmakers and the Green party to pass legislation following the closest election in seven decades in 2010. In February, Gillard saw off a challenge by Kevin Rudd, whom she ousted as Labor leader and prime minister two years ago.

Gillard asked Labor lawmaker Craig Thomson to quit the party last month in the wake of allegations he used a union credit card to pay for prostitutes while working for the Health Services Union before becoming a lawmaker in 2007. Thomson, who has denied the claims, said he will continue to vote with the government.

Thomson Affair

The Thomson affair overshadowed the budget today on the front pages of newspapers including The Australian and the Australian Financial Review. Fair Work Australia, the industrial relations regulator, said yesterday it will take civil action in federal courts over the alleged misconduct.

Peter Slipper, the parliamentary speaker on whom Gillard had relied to solidify her control of the lower house, last month stepped aside to deal with fraud and sexual harassment claims that he denies.

Tony Crook, a National party member of parliament for Western Australia who voted as an independent, announced last weekend he will join the opposition Liberal-National coalition when parliament reconvenes tomorrow.

The opposition increased its lead over Labor in an April 27-29 Newspoll survey to 18 points, on a two-party preferred basis that takes into account the country’s preferential voting system. The survey of 1,148 people had a margin of error of plus or minus 3 percentage points.

To contact the reporter on this story: Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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