Australian Prime Minister Tony Abbott’s government delivers its first budget today since winning office in September, aiming to rein in a record fiscal deficit through spending cuts and new revenue measures.
Reduced family-welfare payments, cuts to government services and asset sales are expected in the annual budget, to be delivered by Treasurer Joe Hockey at 7:30 p.m. in Canberra. He’ll announce a A$30 billion ($28 billion) deficit for 2014-15 after recording a A$46 billion shortfall this fiscal year, according to the median estimate of 10 economists surveyed by Bloomberg News.
Abbott is staking his Liberal-National coalition government’s popularity on the push for a surplus of 1 percent of gross domestic product within a decade as polls show his coalition trails the Labor opposition. Today he confirmed the government will impose a temporary levy on higher-income earners to help erase a A$123 billion projected shortfall for the four years through June 2017.
“This government has boxed itself into a corner by promising to cut the deficit, deliver no new taxes and above all to keep its word,” said Zareh Ghazarian, a Melbourne-based professor at the Monash University School of Political and Social Inquiry. “New governments usually use their first budget to get all the bad news out of the way early so they can throw sweeteners at voters closer to the election.”
Many of the details of the budget have already been leaked or announced. Government-owned assets to be put up for sale include the Royal Australian Mint and an arm of the nation’s corporate regulator, the Australian Financial Review said yesterday, without citing sources. About 16,000 public-service jobs will be axed, while government agencies such as the Australian Renewable Energy Agency and National Water Commission will be scrapped, it said.
In an interview with a Sydney radio station today, Abbott confirmed the introduction of a deficit-reduction levy, along with an increase in the fuel excise, without giving details. The opposition Labor party says Abbott is breaching an election promise not to increase taxes in the budget.
“There’s got to be some short-term pain but it’s pain with a purpose,” Abbott said in the interview. “We have a terrible problem. We are borrowing A$1 billion a month just to pay interest on our borrowing.”
Commission of Audit
Hockey’s bid to end what he calls “the Age of Entitlement” received backing from a government-commissioned audit released this month that recommended reducing family tax benefit and tightening eligibility for unemployment and disability benefits. The commission called for higher payments for each government-funded visit to the doctor and said young people on jobless benefits for longer than a year should have to move to where work was available. It also suggested future growth in the minimum wage be contained to improve job opportunities.
Hockey has already announced the retirement age will rise to 70 from 65 by 2035, along with measures to cut red tape, reduce the civil service by at least 12,000 positions, lower subsidies for automakers and cancel handouts to parents of school children. The government’s plan to scrap a carbon price and mining profits tax have been stalled by opposition lawmakers in the Senate.
Australia’s gross debt was 28.8 percent of GDP last year, the smallest outside of Estonia among advanced economies, according to International Monetary Fund data. That compared with 105 percent for the U.S. and 243 percent for Japan, according to the IMF.
“It’s really going to be an austerity budget,” Alan Oster, chief economist for National Australia Bank Ltd., said in an interview on Bloomberg Television today. The economy “is not as bad as they’re making out. Australia doesn’t have a fiscal crisis but what they’re trying to do is put it back on a sustainable path.”