Australia’s Swan Rejects ‘Mindless Austerity’ Ahead of Budget

Australia’s ruling Labor party, trailing in polls ahead of the September election, will resist making big budget cuts to spending as it would damage the world’s 12th-largest economy, Treasurer Wayne Swan said.

“We reject the heartless philosophy of mindless austerity,” Swan said in an essay published by the Chifley Research Centre today. “When expenditure in an economy is savagely slashed, aggregate demand is suppressed and unemployment rockets up, and ultimately savings in the economy - - including the budget position -- deteriorate.”

Prime Minister Julia Gillard is attempting to boost her minority government’s economic credentials, which were damaged when a slump in tax revenue forced her in December to abandon a pledge to return the May 14 budget to surplus. Slower resource investment, rising unemployment and prices restrained by the currency’s longest stretch above parity to the U.S. dollar in 30 years have seen traders boost bets that the central bank will cut rates to a record low next month.

Adding to the hurdles faced by Australia’s first female prime minister, Gillard must overcome voter perceptions of political infighting within her own party, highlighted last month during her party’s third leadership battle in as many years. Labor’s support remained at 45 percent on a two-party preferred basis, while Tony Abbott’s Liberal-National coalition held at 55 percent, according to a Newspoll published in the Australian newspaper on April 23.

‘Right Rein’

“The Labor party isn’t exactly the flavor of the month at the moment and we haven’t always pulled the right rein every single time over the last few years,” Swan said in today’s essay. “The government has not been perfect, and I have not been perfect, but we’ve learned equally from all of the successes and the times we’ve fallen short of expectations.”

The Reserve Bank of Australia is trying to rebalance a two-speed economy where mining regions in the north and west thrive off Chinese demand, while manufacturing and tourism in the south and east struggle.

Policy makers have left borrowing costs unchanged at 3 percent this year, after lowering them six times in the 14 months through December to help offset the drag on growth from the local dollar and to boost industries including construction.

Australian employers cut payrolls more than forecast in March, with the jobless rate unexpectedly increasing to 5.6 percent, the highest level since November 2009, government data showed April 11.

Slow Inflation

Consumer price growth, the central bank’s preferred measure of inflation, slowed last quarter to a 14-year low rate of 0.3 percent from the previous quarter, the Bureau of Statistics said April 24. Economists had predicted a 0.5 percent gain.

While such signs point to a weakening in Australia’s economy, Swan today said his government had improved the nation’s financial fortunes since coming to power in December 2007.

“No country in the world has made better decisions over the past five years than ours, and the dividends of that can be seen in low unemployment, contained inflation, and low interest rates,” he said.

Labor is pledging to boost spending on education and disability payments should it win power again in the Sept. 14 election. Earlier this month Gillard unveiled a plan to increase education spending by A$14.5 billion ($14.9 billion) over six years in what she called the biggest overhaul of school funding in 40 years.

New South Wales, the largest state by population, became the first of the nation’s eight states and territories to commit to Gillard’s plan at a signing ceremony in Sydney on April 23.

“Education should, and will always, play a major role in building the type of society we want,” Swan said. “We will never accept that a child who lives in Western Sydney should have less of an education than a child from inner Melbourne.”

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