Lower Australian Dollar to Help Federal Budget, Sinodinos Says

A weaker Australian dollar will help improve the government’s finances as it seeks to narrow a budget deficit forecast to balloon to A$47 billion ($42 billion) this fiscal year, Assistant Treasurer Arthur Sinodinos said.

“Where the dollar has headed has been good for the economy,” Sinodinos said in an interview in Sydney today. “A falling Australian dollar will help” the government’s bottom line, he said.

The local currency slumped 18 percent against the greenback from a peak in April to a January low of 86.60 U.S. cents, helping boost the competitiveness of export industries. It gained 1.3 percent to 88.69 U.S. cents at 4:53 p.m. in Sydney today after the Reserve Bank of Australia left interest rates unchanged and signaled a period of steady borrowing costs. A 10 percent drop in the currency boosts gross domestic product by 0.5 percentage point to 1 percentage point over two years, the RBA has previously estimated.

“We don’t target the exchange rate, it’s set by the market,” Sinodinos said. When asked to comment on RBA Governor Glenn Stevens saying in December that 85 U.S. cents was about the right level for the local currency, he said: “We defer to the superior wisdom of the governor.”

Stevens said in a statement accompanying the interest-rate decision today that the Australian dollar’s decline would help achieve balanced growth, dropping references in past central bank statements that the currency was “uncomfortably high.”

The coalition government, elected in September, is pledging to return the budget to surplus within a decade, even as it scraps taxes on carbon emissions and mining profits. Treasury’s December forecast for an underlying cash deficit of A$47 billion in the year ending June 30 compared with an August projection of a A$30.1 billion shortfall.

A Commission of Audit established by the government is due this month to deliver recommendations on government spending.

Age of Entitlement

A “major theme” of the government’s first budget due May 13 will be emphasizing “an end of the age of entitlement and inculcating an age of responsibility” among Australians, Sinodinos said.

The Liberal-National coalition has said it doesn’t believe in “corporate welfare” to prop up ailing industries.

Prime Minister Tony Abbott last week said the government had rejected Coca-Cola Amatil Ltd.’s request for a A$25 million grant to help its fruit processing unit restructure in the face of competition from importers. The Productivity Commission on Jan. 31 recommended ending subsidies to the car manufacturing industry by 2020, saying the government could better assist firms through regulatory change.

“Things have moved on and to cope with the future we do have to be more self reliant,” Sinodinos said. “Government has a role but it’s not the role of, in effect, subsidizing everything or usurping the role of entrepreneurs, risk takers and decision makers.”

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