Gillard Signals Cuts to Tax Benefits for Wealthy Ahead of Poll

Australian Prime Minister Julia Gillard, trailing in polls ahead of this year’s election, signaled cuts to tax breaks and welfare for the higher paid as her Labor government seeks to boost education and disability spending.

“We will announce substantial new structural savings that will maintain the sustainability of the budget and make room for key Labor priorities,” Gillard said in a speech in Canberra today. “Our record of cutting wasteful programs, in line with our Labor values and purpose, is already strong.”

Gillard’s minority government is backing away from a pledge to deliver a budget surplus this fiscal year as weaker growth and a strong local currency curb tax receipts. It needs to find revenue or savings to fund its policy commitments to revamp funding for education, expected to cost about A$5 billion ($5.23 billion) a year, and boost disability welfare.

“This year we will make the tough, necessary decisions to ensure our medium-term fiscal strategy is delivered, and our centerpiece plans for Australian children and Australians with disability are funded, in this new low-revenue environment,” Gillard said in the text of the speech. She pointed to her government’s record of eliminating tax breaks for the rich in pension funds and health schemes as examples of previous effective cuts.

Gillard’s Labor rose 3 percentage points to 49 percent on a two-party preferred basis, with Tony Abbott’s Liberal-National coalition falling 3 points to 51 percent, according to a Newspoll survey published in the Australian newspaper on Jan. 15. An election must be held by Nov. 30.

Swan’s Pledge

Treasurer Wayne Swan, who will deliver the May 14 budget, told a business lunch in New York this month that the government wouldn’t implement “savage” cuts to public-service spending. That came after instigating the first overall cut to government spending in at least 42 years in last year’s budget.

The government, in a midyear review released in October, 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. Weaker commodity prices and an elevated currency have prompted mining companies including BHP Billiton Ltd. to put off projects and cut jobs, while a construction slump forced building-materials company Boral Ltd. to reduce payrolls.

In a bid to stimulate the economy, Australia’s central bank has cut its benchmark rate to 3 percent. The Australian currency’s strength is putting pressure on industries that compete with imports, including manufacturing and services.

“The economic diversity and competitiveness pressures our nation faces now, because of our strong dollar and the huge boom we’ve had in mining investment, may well persist even though economic orthodoxy would predict their lessening,” Gillard said today. “We cannot control a number of factors that have kept our dollar strong: like the weakness in the global economy, the close-to-zero interest rates of many nations and the increasing view that Australia is something of a safe haven.”