Gillard Faces A$17 Billion Revenue Shortfall as Labor Trails

Prime Minister Julia Gillard faces a A$17 billion ($17.4 billion) revenue shortfall in next week’s budget and will scrap plans to boost help for low-paid families as her Labor party trails in polls before the election.

The government has abandoned a pledge to increase the means-tested Family Tax Benefit as a high local currency curbs company tax receipts, Finance Minister Penny Wong said in a Sky News television interview today. Labor fell a further 2 percentage points behind Tony Abbott’s Liberal-National coalition and is trailing by 12 points on a two-party preferred basis, according to a Newspoll published in the Australian newspaper today.

Labor’s credibility was damaged by the government backtracking on a pledge to return the budget to surplus and by internal wrangling over the leadership. Gillard’s bid to woo voters by boosting spending on education and disability payments has failed to garner support ahead of the Sept. 14 election.

“We’ve seen a combination of circumstances -- a very high dollar and the prices of the things we sell to the rest of the world coming off -- that’s obviously having an impact on company profits,” Wong said. “That will have an impact across the budget period.”

The Newspoll survey of 1,138 people, taken May 3-5, had a margin of error of plus or minus 3 percentage points. On the primary vote, which tallies respondents’ first voting preferences, Labor fell 1 point to 31 percent while the coalition rose 1 point to 47 percent. On the question of who would make the better prime minister, Gillard rose 2 points to 37 percent and Abbott rose 2 points to 42 percent, the poll showed.

Budget Challenge

With tax receipts declining, Australia’s first female prime minister last week announced a plan to raise health-care taxation by 0.5 percentage point to fund a national disability insurance program. The budget, scheduled for release May 14, is being put together in “very challenging” fiscal circumstances, Treasurer Wayne Swan said in a May 5 statement.

In last year’s budget, the government promised to increase the maximum rate of its benefit to lower-income families by as much as A$600 a year.

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.

The federal 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.

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.

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

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

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