Australia’s budget will remain in deficit for longer than forecast and the government faces tough decisions to make up for tax revenue shortfalls caused by the currency’s sustained strength, Treasurer Wayne Swan said.
“The money simply isn’t coming in the door like it used to,” Swan said in the text of an address to be given in Melbourne today, before delivering the federal budget on May 14. “That means as a country we are facing some very difficult choices.”
The currency has held above parity with the U.S. dollar for 10 months, the longest stretch since it was freely floated in 1983, bankrupting manufacturers unable to compete with cheaper imports. The government said this week it will collect A$12 billion ($12.4 billion) less tax revenue this fiscal year than Treasury predicted in October, further damaging its economic credibility after Swan was forced to abandon a promised surplus.
“It’s clear that the massive write down we’ve seen in revenue means the budget will remain in deficit for longer than previously forecast,” Swan said in the speech to the Committee for Economic Development of Australia. “I’ve lost some political paint for saying that, but I’m happy to wear it -- because it’s the right decision to support jobs and growth.”
Swan indicated waning resource investment may hurt the nation’s employment market in the period ahead. Unemployment rose to 5.6 percent in March, the highest level in more than three years, government data showed last month.
“The high dollar is a big part of the reason why our economy’s transition may not be seamless,” Swan said. “There may be bumps along the way, including in the labor market as resources projects enter a less labor intensive phase and the non-mining economy takes time to pick up.”
The central bank lowered the benchmark interest rate by 1.75 percentage points in the 14 months through December to 3 percent as it seeks to rebalance the economy away from mining. Traders are pricing in a 41 percent chance it will cut the benchmark rate to a record low 2.75 percent at next week’s meeting, according to a Credit Suisse Group AG index based on swaps.