Australia’s economy will recover faster than anticipated from last quarter’s contraction driven by a record mining boom, and the government won’t relent to pressure to scrap new taxes, Finance Minister Penny Wong said.
The economy will be underpinned by a A$430 billion ($453 billion) pipeline of investment in minerals and energy, Wong told Bloomberg Television in an interview in Sydney today. The government is committed to introducing resource and carbon taxes, she said.
The 1.2 percent fall in gross domestic product, the biggest since 1991, was “slightly larger than the Treasury indicated, but then you’d anticipate a stronger rebound,” she said. “We have to take a step back and look at what’s coming. This is the largest investment pipeline our nation’s ever seen.”
Australia’s economic outlook, accompanied by the lowest debt-to-GDP ratio among advanced economies, helped make its dollar the second-best performing major currency in the past year, climbing about 22 percent against its U.S. counterpart. The government faces opposition over a planned carbon tax to cut Australia’s emissions, the developed world’s biggest per capita, and a levy on surging mining profits.
Wong, a former climate-change minister, said that while plans to charge polluters for emissions is a “tough reform,” the government “will stay the course” on it.
“People will see that the sky doesn’t fall in, that the wheels of life in the economy will continue to turn and I suspect it will become far less controversial,” Wong said.
Support for Prime Minister Julia Gillard, who took over from predecessor Kevin Rudd a year ago, has slumped 5 percentage points to 30 percent, according to a Newspoll survey published in the Australian newspaper this week.
The government has also come under fire over a 30 percent tax on iron ore and coal profits at companies including BHP Billiton Ltd. and Rio Tinto Group that it forecasts will raise A$7.7 billion in the first two years from July 1, 2012. Parliament is due to consider the proposal in the next three months and the revenue will be used to lower the corporate tax rate to 29 percent from 30 percent, encourage retirement savings and pay for roads and railways.
“It’s about investing in our economy for the future, making it more resilient and increasing our capacity,” Wong said of the mining tax. “It’s a very, very important policy and one that I think people can see the sense of.”
Gillard’s government is seeking to return its budget to surplus by 2013 and Wong said today that target to erase the deficit is essential for the economy. Wong is helping oversee that effort.
“When you’ve got that kind of investment wave in your nation you have to make space for it, you don’t want to be adding to the price pressures which inevitably accompany that kind of investment,” she said. “Coming back to surplus is a very sensible economic policy and that’s why we’re committed to it and that’s why we’re on track to achieve it.”
The Reserve Bank of Australia has said the nation’s benchmark interest rate, already the highest in the developed world at 4.75 percent, will probably have to rise further to contain price pressures. Governor Glenn Stevens said in a June 15 speech that fiscal policy is playing a “significant role” in helping restrain the economy.
Wong’s post of finance minister is akin to head of the White House Office of Management and Budget in the U.S., with Treasurer Wayne Swan occupying the equivalent of Treasury Secretary.
She was born in Kota Kinabalu in Sabah, Malaysia, to a Cantonese father and an Australian mother. Her parents met at the University of Adelaide when her father traveled to South Australia on a scholarship in the 1960s and returned to Malaysia together. When they separated, Wong moved to Australia at the age of eight with her mother and brother.