Australia’s government said it’s unlikely to deliver a pledged budget surplus this fiscal year as weaker growth and a strong local currency curb tax receipts, a setback for Prime Minister Julia Gillard before an election due in late-2013.
“What we’ve seen is a sledge hammer hit our revenues,” Treasurer Wayne Swan said during a news conference today in Canberra. Rather than find spending cuts that further slow the economy, Swan said the government would try to support job growth.
Gillard, Australia’s first female prime minister, staked her economic credibility partly on delivering the first surplus since the 2009 global recession. Threatening that commitment is a weaker international outlook, lower prices of commodity exports and a high local dollar that’s hurting non-resource industries such as tourism and manufacturing.
“It’s a pragmatic move but it’s fraught with political danger,” said Zareh Ghazarian, a lecturer at the School of Political and Social Inquiry at Melbourne’s Monash University. “It’s going to make the opposition’s job to attack them that much easier.”
The government, in a midyear review released in October, forecast a budget surplus of A$1.08 billion ($1.13 billion) in the 12 months ending June 30. It recorded a A$44 billion deficit last fiscal year.
Since the midyear budget revisions, conditions have deteriorated. “In just four months we have already seen the full hit to revenue that we were expecting for the full year,” Swan said.
The Australian dollar bought $1.0489 at 5:10 p.m. in Sydney, compared with $1.0474 before Swan’s announcement. Two-year government yields fell as much as six basis points to 2.68 percent, the lowest level in more than a week.
Standard & Poor’s said the country’s stable AAA debt rating is not immediately affected. The ratings company said in a statement today from Singapore that it sees the government running a balanced budget over the medium term and public sector debt remaining low.
Opposition leader Tony Abbott, speaking to reporters in Sydney, said Gillard’s retreat from the surplus goal is the latest in a series of broken promises from her administration.
“You just can’t trust this government to manage the economy and you just can’t trust this government to tell the truth,” Abbott said, calling Swan’s announcement “humiliating, embarrassing.”
The ruling Labor party’s primary vote fell four percentage points to 32 percent with Abbott’s Liberal-National opposition rising three points to 46 percent from a poll two weeks earlier, according to a Newspoll survey published in the Australian newspaper Dec. 11.
Australia’s gross domestic product advanced 3.1 percent in the third quarter from a year earlier, slowing from a 3.8 percent year-on-year gain in the prior quarter, a Bureau of Statistics report released Dec. 5 showed. Growth was 0.5 percent from the previous three months, the weakest quarterly gain since January-March 2011, the data showed.
To counter the slowdown, the central bank cut interest rates six times since Nov. 1, 2011, including a reduction earlier this month to 3 percent. Governor Glenn Stevens’s statement cited “constrained” public spending in his explanation for the cut.