Australia’s chances of delivering a budget surplus in coming years are diminishing as the government’s revenue is being curbed amid a period of economic weakness, Finance Minister Penny Wong said.
“What we are seeing in the economy means that we have a very large hit on revenues,” Wong said in an interview on Sky News yesterday. “That’s a hit that is substantial both in this year and over the forwards.”
She declined to directly answer when government will be able to deliver a federal budget surplus, saying the objective is to do so “over the economic cycle.” Prime Minister Julia Gillard, whose budget is due May 14, was forced to abandon a pledge to achieve a surplus this year as slow growth and currency gains curbed tax revenue.
“We do face some unusual circumstances,” Wong said, noting that nominal gross domestic product has been below real gross domestic product for three successive quarters for the first time in 50 years, slowing company profits and tax revenue.
The national budget fell a further A$4.6 billion ($4.8 billion) into deficit in the first four weeks of 2013, taking the total shortfall to A$26.8 billion for the first seven months of the financial year, according to Treasury figures released March 15.
In its October mid-year review, the government forecast a budget surplus of A$1.08 billion in the 12 months ending June 30. It recorded a A$44 billion deficit last fiscal year.
The prospects for the economy are improving as low interest rates gain traction, Treasurer Wayne Swan said yesterday, citing a report showing a 2.5 percent gain in retail sales in the first two months of 2013.
The Reserve Bank has cut benchmark lending rates by 1.75 percentage points in the past 18 months to stimulate industries outside mining and offset the drag on the economy from a high currency. Governor Glenn Stevens kept the cash target unchanged at 3 percent on April 2.
“While the transition towards non-mining sources of growth over the next year or two may not be seamless, we need to remember that Australia starts this transition with some of the strongest economic fundamentals in the world,” Swan said in his weekly statement.
Australia’s cabinet expenditure committee sees little chance of a surplus in the four years ending mid-2018, the Australian Financial Review reported April 6, citing unidentified people in government. The Gillard administration will argue that it is economically irresponsible to impose deeper spending cuts to achieve a surplus, the newspaper cited the officials as saying.
“The government has always said you make the right economic calls for the time, and the government has made the right economic calls,” Wong said. “The budget will certainly comply with the government’s medium-term fiscal strategy, which has the objective of surpluses over the economic cycle.”