May 9 (Bloomberg) -- Australia’s government, facing an election next year, scrapped a planned cut in company taxes to fund payouts for low- and middle-income earners in its budget as Prime Minister Julia Gillard attempts to counter a slide in opinion polls.
While the budget detailed A$33.6 billion ($34.1 billion) of spending cuts over five years in a bid to return to a surplus, it also contained extra cash payments to parents with school-aged children, increased funding for dental care and support for the disabled. Most benefits are means tested, excluding higher-income earners.
The nation’s first female prime minister is being buffeted by scandals that have weakened her control of parliament and threaten to derail efforts to impress on voters her record as a sound economic manager and successful legislator. In the budget announced in Canberra yesterday, Gillard is looking to redistribute revenue collected from new taxes on the mining industry and polluters before elections due by the end of 2013.
“Gillard’s banking on this budget to get her party out of the doldrums,” said Zareh Ghazarian, a political analyst at Monash University in Melbourne. “She’s trying to reclaim the political agenda by stamping her authority on the debate by directing people’s attention to the issues that it sees as important, including helping out low- to middle-class Australians.”
The mining tax, which won Senate approval in March, will reap about A$6.5 billion in revenue over two years from companies including BHP Billiton Ltd. and Rio Tinto Group, government estimates show.
The government had planned to use the proceeds to cut company taxes by 1 percent. Gillard said that proposal was abandoned due to a lack of support in parliament and the money would be spent instead on increased family benefits and support for businesses.
“This is about one thing: spreading the benefits of the mining boom to the Australian community,” Gillard said on Channel 7 today. “Here is some help for families.”
Australia expects to raise A$24.7 billion in four years from the carbon tax coming into effect July 1, as the government seeks to reduce emissions and spur investment in cleaner energy.
The prime minister is banking on softening public disapproval of the levy on the nation’s 500 biggest polluters by redistributing some of the revenue raised to “working people,” she said last week.
Australia’s economy is being powered by demand for energy and minerals located in the nation’s north and west from emerging countries including India and China, driving a more-than 30 percent rise in the local currency in the past three years. That’s put pressure on non-resource industries such as manufacturing and tourism in the most-populous states of New South Wales and Victoria.
“It’s a battler’s budget,” Ghazarian said, using Australian slang for the working class that typically makes up Labor’s core vote. The nation’s unemployment rate, now at 5.2 percent, is predicted by the government to rise to 5.5 percent over the next two years.
The government says returning the budget to surplus will give the central bank the flexibility to lower borrowing costs in a nation where almost 90 percent of mortgages are at variable rates.
Gillard received a fillip on May 1, when the Reserve Bank of Australia lowered its benchmark rate, the highest among major developed economies, by half a percentage point, to 3.75 percent. She said last month that a rate cut “could deliver widespread benefits for households and business.”
Treasurer Wayne Swan’s budget includes a payment to families of as much as A$820 for each child in high school. As well, families with two children will receive an extra A$600 a year from July 2013 under the Family Tax Benefit program, using revenue from the mining tax.
The government has also introduced an insurance scheme for the disabled and boosted its national dentistry health-care coffers by A$513 million to reduce waiting lists at dentists.
The budget handouts are a “sugar hit to try and save Julia Gillard’s leadership,” Opposition Treasury spokesman Joe Hockey said in an Australian Broadcasting Corp. interview today. “From our perspective and the Australian people, many will be bewildered what this budget is meant to deliver.”
Gillard, a former labor lawyer whose party lacks a majority in parliament, is fighting to overcome setbacks that have weakened her control of the 150-seat lower house.
Tony Crook, a National party member of parliament for Western Australia who voted as an independent, joined the opposition coalition when parliament reconvened yesterday.
Gillard on April 29 asked Labor lawmaker Craig Thomson to quit the party in the wake of allegations he used a union credit card to pay for prostitutes while working for the Health Services Union before becoming a lawmaker in 2007. Thomson, who has denied the claims, said he will continue to vote with the government.
Peter Slipper, the parliamentary speaker on whom Gillard had relied to solidify her control of the house, last month stepped aside to deal with fraud and sexual harassment claims that he denies.
Gillard’s minority government has needed the support of independent lawmakers and the Green party to pass legislation following the closest election in seven decades in 2010. She has battled charges by the opposition that she’s beholden to the Greens and broke a campaign pledge to oppose the carbon levy. In February, she saw off a challenge by Kevin Rudd, whom she ousted as Labor leader and prime minister two years ago.
The opposition Liberal-National coalition increased its lead over Labor in a April 27-29 Newspoll survey to 18 percentage points, on a two-party preferred basis that takes into account the country’s preferential voting system. The survey of 1,148 people had a margin of error of plus or minus 3 percentage points.
“This budget represents one of the last opportunities Labor has to reconnect with its core market, the so-called ‘battlers’ of low and middle-income Australia,” said Andrew Hughes, a political analyst at the Australian National University in Canberra. “With a range of policies designed to provide income and taxation relief to this market, the budget definitely ticks those boxes.”
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