Australian Tax Changes Vital for Government Finances, Swan Says

Australia’s tax system needs more reform to ensure sustainable public finances and create incentives for businesses to invest, Treasurer Wayne Swan said.

At least 40 measures have been implemented by the Labor government since coming to office, Swan wrote in his weekly note yesterday, ahead of an address to the Council on Federal Financial Relations today. Tax reform is the responsibility of federal and state governments, he said.

“Many of the changes have been hard fought, but they have all been absolutely essential to ensure government finances are sustainable in the long term,” Swan said, citing measures like cutting back tax breaks for those on high incomes. “A large proportion of the savings have been delivered through reforms to the tax and transfer system.”

Prime Minister Julia Gillard’s bid for a A$44 billion ($46 billion) swing back to a budget surplus in time for an election due next year has been jeopardized by a weaker international growth outlook, lower prices for commodity exporters and the high currency.

Gillard’s policy paper on Australia’s future role in Asia, published in October, highlighted tax reform as one way to ensure workers and businesses benefit from opportunities in the region, Swan said.

Swan said he’s inviting submissions ahead of next year’s budget and asking that spending proposals be accompanied by ideas for equivalent savings to maintain Australia’s “strong” fiscal position.

Government Debt

Australia’s currency, the so-called Aussie, has averaged about $1.03 in the past two years, compared with about 73 U.S. cents in the prior decade, as offshore investors sought the relative security of Australian government debt, the highest- yielding debt among the seven nations with stable AAA grades from all three major ratings companies.

The Reserve Bank of Australia, the nation’s central bank, has cut the benchmark interest rate by 1.75 percentage points to 3 percent in the past 14 months in an attempt to revive industries outside mining, where investment is expected to peak next year. That’s the level reached between April-October 2009, the lowest since 1960.

Traders are pricing in a 53 percent chance policy makers will lower borrowing costs by a quarter-percentage point to a record-low 2.75 percent at their meeting in February, swaps data compiled by Bloomberg showed Dec. 12.

To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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