May 14 (Bloomberg) -- Australian Prime Minister Julia Gillard’s government announced plans to upgrade infrastructure as it boosts health and education spending, in a budget seeking to woo back voters while restoring economic credibility four months before an election.
The government will spend A$24 billion on road and rail projects, while targeting A$43 billion of savings over five years in an effort to return to surplus by 2016-17, Treasurer Wayne Swan said in budget papers released today. He forecast a A$19.4 billion deficit for the year ended June, from a A$1.1 billion surplus seen in October, as the strong Australian dollar dented revenue.
“Just because the global economy took an axe to our budget, does not mean we should take an axe to our economy,” Swan said in the text of an address delivered in Canberra. “We’ve chosen a responsible path to surplus while supporting jobs and growth.”
The budget is one of Gillard’s last chances to narrow a double-digit gap in opinion polls before the Sept. 14 election by focusing on core Labor party pledges to improve education and healthcare. The government eschewed steeper cuts and has previously warned that Tony Abbott’s opposition coalition would slash spending and damage growth.
“This budget provides the government with the ability to entrench some core policies and appeal to those Labor voters who have drifted away,” Zareh Ghazarian, a lecturer in politics at Monash University in Melbourne, said before the announcement.
The Australian dollar traded at 99.62 U.S cents at 7:37 p.m. in Sydney versus 99.76 cents before the budget was released.
Announcing his sixth budget as Treasurer, Swan pledged to spend more than A$3.7 billion on rail projects in Melbourne and Brisbane and at least A$2.2 billion on highways in Sydney, the nation’s most populous city.
“These projects will increase rail capacity and reduce the traffic grind that commuters face every day,” he said in the papers.
Several measures were previously announced by the government, including an increase to the Medicare levy that funds Australia’s government-run healthcare system. The surcharge on incomes will rise to 2 percent from 1.5 percent to fund the National Disability Insurance Scheme, which is intended to provide lifelong support for people with physical and mental handicaps and their families.
Gillard has also previously announced a plan to increase school funding by A$9.8 billion over six years from 2014-15, in an effort to place Australia among the top five nations for reading, mathematics and science by 2025.
The government is seeking to save more than A$4 billion through June 2017 by closing tax loopholes for multinational and other large companies. The measures include addressing “aggressive tax minimization strategies” that shift profits by artificially loading debt into Australian units.
The government announced plans to support Australian jobs, saying any new project worth more than A$500 million must include a participation plan for local businesses. An Anti-Dumping Commission will be created, to protect Australian industry from unfair overseas competition.
Defense spending will increase to A$113 billion over four years, from A$103 billion announced last year, according to the papers.
Swan forecast a deficit of A$18 billion in 2013-14, a balanced budget by 2015-16 and a A$6.6 billion surplus in 2016-17.
“To those who would take us down the European road of savage austerity I say the social destruction that comes from cutting too much, too hard, to fast is not the Australian way,” he said in the text of his speech.
Australia’s stable AAA credit rating would be threatened if the government is forced to weaken its commitment to returning to a balanced budget, Standard & Poor’s said April 29. That rating has been a cornerstone of the government’s pitch to voters, along with low unemployment of 5.5 percent and a record low benchmark interest rate of 2.75 percent.
The government’s economic message has been overshadowed by party infighting and challenges to Gillard’s leadership by former Prime Minister Kevin Rudd.
Abbott’s Liberal-National coalition has criticized Swan’s stewardship of the economy, citing a December backflip on a pledge to restore the budget to surplus this fiscal year and new taxes on carbon emissions and mining profits that the opposition says it would repeal if it wins office.
The government today forecast the carbon price will slump to A$12.10 a ton in the year starting July 2015 from a previous Treasury estimate of A$29 a ton, slashing revenue for the four years to 2015-16 by about A$6 billion from the previous forecast.
The 30 percent tax on iron ore and coal profits will reap A$1.8 billion less in revenue for the year to June 30 than previously forecast, the budget documents said.
“One of the problems that the Labor Party has had, it’s always made big, bold, unqualified statements and then failed to deliver and that just undermines business and consumer confidence,” Shadow Treasurer Joe Hockey told reporters in Canberra yesterday. “We are determined to be measured and thoughtful.”
Labor fell a further 2 percentage points behind the coalition and is trailing by 12 points on a two-party preferred basis, according to a Newspoll published in the Australian newspaper May 7. Gillard’s party hasn’t led in opinion polls in more than 18 months.
While spending measures in the budget may appeal to Labor’s core support, “ultimately though, it all looks a bit too late,” said Monash University’s Ghazarian. “The polls are rarely moving which suggests that voters have stopped listening and have already made up their minds to vote the government out.”
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