Coalition Outlines Foreign Aid Cuts Before Australia Ballot

Australia’s Liberal-National coalition, on track to win government in the Sept. 7 election, would cut A$4.5 billion ($4.1 billion) in foreign aid over four years to fund an increase in infrastructure spending.

The reduction is part of the coalition’s A$40 billion in planned savings over the four years to June 30, 2017, Shadow Treasurer Joe Hockey told reporters in Melbourne today. Infrastructure spending would be boosted by almost A$5 billion.

“We are going to cut the growth in foreign aid to pay for necessary infrastructure here in Australia,” Hockey said. “We need to do this to grow our economy. We can only be a more generous nation to the rest of the world if we have a strong Australian economy.”

Hockey has been pressured by the government to outline how he’ll fund promised tax cuts and spending increases on education, disabled care and paid parental leave at a time of weaker-than-forecast government revenue. Polls shows the Tony Abbott-led coalition is poised to take control of Australia’s $1.5 trillion economy from Kevin Rudd’s ruling Labor with an election victory in two days.

“The cuts to foreign aid and higher infrastructure spending are about bringing the focus back home as that’s what businesses are yearning for,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “The relatively minor cost cuts announced are a strategic move for the election rather than a comment on future economic management.”

Reducing Debt

The winner of the election will inherit an economy that has avoided consecutive quarters of contraction -- the local definition of a recession -- for 22 years. Signs of a slowdown have emerged, with record-low interest rates implemented to counter rising unemployment, forecast by Treasury last month to rise to a more than decade-high 6.25 percent next year, as a China-led resources-investment boom starts to wane.

The coalition’s savings plan will reduce government debt by A$16 billion over the next four years, Hockey said. Outstanding federal debt stood at A$271.6 billion at the end of last month, according to the government funding arm.

Other cuts outlined by the coalition today include delaying spending commitments on the Murray Darling Water Buyback program, saving A$650 million, and introducing a further 0.25 percent efficiency dividend on the public service, netting A$428 million, Hockey said in a separate statement.

Better Roads

The coalition has committed to spending more than A$20 billion on new or upgraded infrastructure projects, with roads to get the bulk, he said.

“There is some scope for a national government to make some cuts,” John Wanna, a professor of public administration at the Australian National University in Canberra, said in a Bloomberg Television interview. “There is going to be some trimming of public policy. The economy is in very low growth at the moment.”

The opposition has promised to abolish Labor’s carbon and mining levies and lower the business-tax rate while funding a A$5.5 billion per year maternity-leave program. It plans to cut red tape, reduce the civil service by at least 12,000 positions, lower subsidies for automakers, cancel handouts to parents of school children and achieve a budget surplus equal to 1 percent of gross domestic product within a decade. Company taxes will fall 1.5 percentage points to 28.5 percent.

“Abbott is in the business of cuts, cuts and more cuts for Australia’s future,” Rudd told reporters in Canberra today. “Our opponents have invariably been content to oppose, oppose, oppose and then tear the house down.”

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