Gillard Woos Voters With Australia Budget Spending Pledges

Australia’s government is wooing voters with increased infrastructure, health and education spending while charting a path to a budget surplus as it seeks to restore economic credibility four months before an election.

The government will spend A$24 billion ($23.8 billion) on road and rail projects and target A$43 billion in savings over five years to return to surplus by 2016-17, Treasurer Wayne Swan said in budget papers released yesterday. He forecast a A$19.4 billion deficit for the year ended June, from a A$1.1 billion surplus seen last October, as the strong Australian dollar dents tax revenue.

“It’s a responsible budget that deals with the very substantial hit to revenues that we’ve seen,” Finance Minister Penny Wong said in a Bloomberg Television interview from Canberra today. “We’ve deferred the return to surplus and we’re obviously going to take some political criticism for that.”

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 is an attempt to project two relative strengths in education and health that might mitigate what looks like an election disaster,” said Nick Economou, a political analyst at Monash University in Melbourne. “Frankly it all seems too late because the voters have stopped listening.”

Tax Loopholes

As part of its bid to save A$43 billion over five years, the government is seeking to save more than A$4.2 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.

It will also scrap a cash payment to the parents of newborns and cap family payments for a saving of A$2.4 billion.

“The government doesn’t have a revenue problem, they’ve got a spending problem,” Shadow Finance Minister Andrew Robb said in an interview with Bloomberg Television today. “We just need to trim the sails on a whole lot of programs that are surplus to requirements. If we do that, we can progressively get this budget back into a sustainable surplus.”

Sixth Budget

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.

Several measures were previously announced, 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 also previously announced a plan to boost 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.

Jobs, Defense

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.

“It would be irresponsible to impose a savage fiscal consolidation on the economy when it’s still transitioning from mining investment to other growth drivers in the face of the doggedly high dollar,” Swan said in a speech in Canberra today. “I will never sacrifice jobs and growth on the altar of political expediency.”

While the budget represents “some slippage in achieving the government’s strategy of returning the budget to surplus,” Australia’s stable AAA credit rating is unaffected, Standard & Poor’s said yesterday. 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 a challenge 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 the imposition of new taxes on carbon emissions and mining profits that the opposition says it would repeal if it wins office.

Carbon Price

The government 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, cutting 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.

“The big hit has been from the revenue writedown,” Prime Minister Julia Gillard said in a Sky Television interview today. The budget “makes room for the big investments, the wise investments that our nation needs, including education.”

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,” Zareh Ghazarian, a lecturer in politics at Monash, said before the announcement. “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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