Australia is set to announce “significant” savings in a budget review today to meet its goal of returning to surplus as Treasurer Wayne Swan said the nation’s “sturdy fundamentals” allow for fiscal discipline.
The nation has “low unemployment, contained inflation, strong business investment and a triple-A credit rating,” Swan said yesterday in his weekly economic note. “The toughest conditions in the global economy in generations have cut a swathe through traditional sources of revenues,” Swan wrote. “This will require more savings to be found. The savings will be significant.”
Prime Minister Julia Gillard’s government has committed to restoring a budget surplus in the fiscal year ending June 30 after four years of deficits even as growth moderates. Australia’s economy is succumbing to a slowdown in world expansion that the International Monetary Fund predicted this month would be the weakest since the 2009 recession.
The federal government is preparing to reveal A$4 billion ($4.1 billion) in spending cuts and other measures, the Sydney Morning Herald said on Oct. 20. Increased charges for visa applications will boost revenue by about A$500 million, the Sunday Telegraph reported yesterday, without saying where it got the information.
“I have no doubts whatsoever about the critical importance of our budget strategy,” Swan said.
The government could delay a return to a budget surplus and the central bank could consider rate cuts if the global economy deteriorates, the International Monetary Fund said in a Sept. 20 report. Australia, the world’s biggest exporter of iron ore and coal, recorded its widest trade deficit since 2008 in August, with exports falling for the third straight month, an Oct. 3 report from the Bureau of Statistics showed.
The Reserve Bank of Australia has reduced the overnight cash rate target five times in the past year as signs emerged of a slowdown.
“With unemployment rising and with the resources sector slowing down it is becoming clearer that lower-than-expected revenue may make achieving a surplus in 2012-13 difficult without taking steps that will jeopardize growth over the medium term,” Tony Shepherd, president of Australia’s Business Council, said in an e-mailed statement yesterday.
Australia has managed to avoid recession for the past 21 years as China’s infrastructure-led economic expansion fueled sales of commodities. Slower growth in demand this year has weighed on prices, denting projected tax revenues. The price of iron ore has fallen 14 percent since July 1.
The pace of China’s iron ore demand has slowed by more than half, Alberto Calderon, chief commercial officer of the world’s biggest miner BHP Billiton Ltd., said at a conference in Canberra last month.
Melbourne-based BHP has delayed an estimated $68 billion of projects, including an iron ore port expansion at Australia’s Port Hedland, the world’s biggest export harbor for the commodity, as prices slumped. BHP, Rio Tinto Group and Xstrata Plc have all shed jobs in Australia, particularly in the coal sector where falling prices have rendered some operations uneconomical.