Australia’s budget deficit was little changed from a previous forecast in the year through June, and the government remains committed to delivering a surplus this fiscal year, Treasurer Wayne Swan said.
The shortfall was A$43.7 billion ($45.6 billion) in the 12 months to June 30, compared with the A$44.4 billion projected in the May budget, Swan said in a statement. The A$661 million difference from the prior forecast was the smallest variation between estimate and outcome for a decade, and was attributed to lower government payments and higher tax revenue.
Falling prices for iron ore and coking coal have eroded the nation’s terms of trade -- a measure of windfall gains from exports that reached a record high last year -- and are complicating the government’s bid for a swing to surplus. It is betting tighter budgets will put the onus on the central bank to further reduce the highest benchmark rate among major developed nations and win a political dividend in an economy where 90 percent of mortgages have floating rates.
“While the decline in commodity prices in recent months will inevitably make it more difficult to return the budget to surplus in 2012-13, the government remains committed to doing so,” Swan said in the statement in Canberra today. “Returning the budget to surplus is Australia’s best defense at a time of ongoing global turbulence.”
A risk to the government’s plan is slower growth heading into an election year with polls showing the opposition Liberal-National coalition would win. The Australian dollar has been the best-performing major currency against the U.S. dollar during the past three years, rising about 21 percent, and hurting non-resource industries including tourism, retail and manufacturing.
“Because of factors like the high Australian dollar, a cautious consumer, subdued asset prices and the investment boom, we don’t expect taxes to return to pre-crisis levels,” Swan told reporters in Canberra after releasing the document, referring to the period before the 2009 global recession.
The 2011-2012 deficit is equivalent to 3 percent of gross domestic product, Swan said. That compares with a U.S. deficit equivalent to 7.9 percent of the economy, Japan’s shortfall of 10.1 percent and the U.K.’s gap of 8.3 percent of GDP, according to data compiled by Bloomberg.
“Australia’s fiscal position is much healthier than most other developed economies,” Swan said. “Our 2011 deficit is less than half the average budget deficit recorded for the major advanced economies in 2011.”
Prime Minister Julia Gillard and Swan have struggled to protect the ruling Labor Party’s electorate from the two-speed economy -- a phrase used to distinguish resource-rich regions in the north and west that are powering growth and hiring workers, from struggling tourism, manufacturing and retail industries of the south and east.
Reserve Bank of Australia Governor Glenn Stevens lowered the benchmark interest rate by a total of 75 basis points in May and June before keeping borrowing costs unchanged at the past three meetings.
Australia’s economy grew about 4 percent in the first half of 2012 from a year earlier on the strength of resource-industry investment and consumer spending. Still, a plunge in the price of iron ore, the nation’s biggest export, and an elevated currency prompted mining companies including BHP Billiton Ltd. and Fortescue Metals Group Ltd. to put off projects and cut jobs in the past month.