Treasurer Joe Hockey is aiming to spur A$125 billion ($117 billion) in infrastructure projects, support medical research and bolster the education export sector to aid Australia’s transition from mining-led growth.
“The other 90 percent of the economy needs to lift,” Hockey said in an interview yesterday after delivering his first budget for the Liberal-National coalition government. “We’ve got to fire it up. You’ve got to do that whilst having some appropriate level of fiscal consolidation.”
While the main thrust of the budget was aimed at reining in debt and the deficit, Hockey’s re-prioritizing of spending is designed to boost service industries where Australia has proved competitive and tap demand in Asia, the world’s fastest-growing region. Hockey, the son of an immigrant delicatessen owner, has scope to lower deficits as the nation’s central bank has cut interest rates to a record low 2.5 percent to help avoid a growth gap as mining investment falls.
“We’re trying to replace lots of jobs lost out of mining and engineering,” said Stephen Walters, JPMorgan Chase & Co.’s chief economist in Australia. “So we need to develop these high-tech service industries that potentially are quite labor intensive. It’s an innovative strategy. But it’s also a big picture story. Ask me in two years if it’s working.”
Real gross domestic product growth is projected to slow to 2.5 percent in 2014-15, from 2.75 percent in the year to June 30. Growth will pick up to 3 percent in 2015-16 and 3.5 percent in the following two years, according to the budget estimates.
“I’m bullish about the Australian economy but also cautious,” Hockey said. “Cautious in that we’re not going to do anything that undermines growth but bullish about the long-term opportunities in a fast-growing region.”
Hockey, 48, rose from humble beginnings to study at the University of Sydney, where he shared a rugby team with Tony Abbott, now the prime minister. A career in banking and finance law turned to politics and he won the federal seat of North Sydney in 1996, with his first junior ministerial role coming two years later.
In his maiden speech to parliament, Hockey said he wanted to help build “equality of opportunity for all our citizens.” That was reflected in yesterday’s budget address, when he said he was aiming to create an “age of opportunity.”
The government plans an A$11.6 billion infrastructure growth package to help boost total federal, state and private-sector investment to A$125 billion by 2020. It committed A$5 billion to provide incentives over five years to states and territories to sell assets and reinvest the proceeds in infrastructure.
“It is a massive investment in new infrastructure,” Hockey said. “We’re focusing on the structural issues to build a stronger and more vibrant economy.”
Hockey flagged the sale of Australian Hearing, which provides aural aid including more than 150,000 hearing devices a year; Defence Housing Australia, which provides housing services for military personnel; the Royal Australian Mint and the registry services of the nation’s securities regulator. The proceeds of privatizations will be reinvested into the asset recycling fund for new projects.
The Medical Research Future Fund will aim to boost one of the economy’s better-performing industries at a time of retrenchment in manufacturing as well the slowdown in mining investment. Savings from health reforms and A$5 of each A$7 patient contribution for doctor visits will be reinvested in the fund until it reaches A$20 billion, the budget papers show.
Companies are shuttering plants in industries such as auto making as a mining boom drove the value of the local currency to above $1.10 in July 2011, the highest level in the 30 years since exchange controls were dropped. While the currency has since depreciated to about 93 U.S. cents, it’s still higher than at any point in the 18 years to 2007.
“You’ve just got to cope with it and get on with the job,” Hockey said of the currency’s level. On the RBA’s policy setting, he said the central bank “forms its own opinions and we have to work with where they head.”
Echoing the past coalition government, Abbott is betting a firmer fiscal footing will help win over voters in time for elections due to be called by 2016. The budget showed the government had broken election promises, Shadow Finance Minister Tony Burke said today.
“They’ve manufactured a crisis, then used that argument to be able to simply implement a whole lot of cuts,” Burke said in an interview with Bloomberg Television in Canberra. “The claim that Australia is anything other than an international success story just doesn’t stack up.”
The government is keeping faith with voters through the budget, Finance Minister Mathias Cormann said today.
“This will impact on everyone across Australia,” Cormann said in a Bloomberg TV interview in Canberra. “We are asking every Australian to contribute to the task of putting our country, putting our budget, back on track.”
Hockey also defended the budget, which will see 16,500 civil servants lose their jobs as he pushes toward a smaller government.
“Ultimately, the smaller the public sector, the bigger the private sector,” Hockey said. “As long as you lift the tide, all boats will rise.”