Australia MRRT Forecast Cut as Gillard Faces Revenue Fall

Photographer: Carla Gottgens/Bloomberg

Australian Prime Minister Julia Gillard’s ruling Labor party, trailing in polls ahead of a Sept. 14 election, faces a A$12 billion ($12 billion) slump in tax receipts that forced her in December to abandon a commitment to return Australia’s budget to surplus. Close

Australian Prime Minister Julia Gillard’s ruling Labor party, trailing in polls ahead... Read More

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Photographer: Carla Gottgens/Bloomberg

Australian Prime Minister Julia Gillard’s ruling Labor party, trailing in polls ahead of a Sept. 14 election, faces a A$12 billion ($12 billion) slump in tax receipts that forced her in December to abandon a commitment to return Australia’s budget to surplus.

Australia’s forecast mining tax revenue has been downgraded, underscoring the “grave” budget decisions facing Prime Minister Julia Gillard as the strength of the local dollar squeezes trade-exposed businesses.

Gillard’s 30 percent tax on iron ore and coal profits will reap A$800 million ($824 million) in revenue for the year to June 30, down from an October estimate of A$2 billion, according to a Parliamentary Budget Office document released by the Greens party today. In the following four fiscal years, the tax will raise A$3.5 billion less than earlier forecast, it said.

With tax receipts declining, Gillard, the country’s first female leader, last week announced a plan to raise health-care taxation by 0.5 percentage point to fund a national disability insurance program. Her ruling Labor party, trailing in polls ahead of a Sept. 14 election, faces a A$12 billion slump in tax receipts that forced the government in December to abandon a commitment to return Australia’s budget to surplus.

“Labor’s reputation in economic management has taken a bit of a hit as news leaks out of falling revenues and pressure on the budget,” said Stephen Stockwell, a political analyst at Brisbane’s Griffith University. “Gillard had a minor win in getting support for her disabled plan but voters know they will be the ones funding that.”

Treasury is working on the assumption of 2.75 percent economic growth for 2012-13 and 2013-14, the Australian Financial Review reported today, without citing anyone. That compares with a government forecast in October of 3 percent for both years. Treasury declined to immediately comment on the report.

Currency Pressure

“There are plenty of pressures on because our currency has appreciated, grown in value by around 50 percent,” Gillard said in an interview with Australian Broadcasting Corp. television yesterday. “There is less tax money coming into the government than was expected. That means you do face grave decisions as you address budget questions.”

The budget, scheduled for release May 14, is being put together in “very challenging” fiscal circumstances, Treasurer Wayne Swan said in a separate statement yesterday.

Senate Report

A Senate committee released a report today calling on the mining tax to be scrapped as it was “complex, distorting, inefficient, costly to administer, costly to comply with and unnecessary.”

Two Labor parliamentarians on the committee dissented, with Senator Mark Bishop saying it was “an intensely political document designed to support the single-minded obsession of the opposition to reject the MRRT.”

The Medicare levy, which funds Australia’s government-run health-care system, will be raised from a 1.5 percent surcharge on income tax to 2 percent to fund the so-called National Disability Insurance Scheme, which is intended to provide lifelong support for people with physical and mental handicaps and their families. That will raise about A$3.3 billion in its first year, according to the government.

The increase to the Medicare levy shouldn’t be removed if the budget returns to surplus, Gillard said.

“This needs to be there as a funding source for all of time,” she said.

The government’s budget faced a A$24 billion deficit in the first eight months of the financial year ending in June, according to Treasury figures released April 12.

AAA Grade

Australia, one of only eight nations with stable top-level grades from ratings companies Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings, would see its stable AAA grade threatened if the government is forced to weaken its commitment to returning a balanced budget, according to S&P.

“The high dollar is putting enduring pressure on profits across non-mining sectors, with firms absorbing costs rather than passing them on to consumers,” Swan said yesterday. “These developments have weighted heavily on government revenues.”

Australia’s currency, which didn’t rise above 85 U.S. cents between 1990 and 2006, hasn’t dropped below that level in almost three years. It was at $1.0297 at 11:10 a.m. in Sydney, up 71 percent from late October 2008.

Gillard is trying to focus attention on the nation’s economic strengths as her Labor party, which has endured three leadership battles in as many years, trails the Tony Abbott-led Liberal-National coalition in opinion polls.

Just 45 percent would support Labor once preference votes are accounted for under Australia’s electoral system, compared with 55 percent for the opposition, according to a Newspoll published in the Australian newspaper April 23. The two-party preferred measure is designed to gauge which party is likely to win enough seats to form a government.

To contact the reporters on this story: David Fickling in Sydney at dfickling@bloomberg.net; Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net

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