Australia unveils budget to stimulate ailing economy

Australian Treasurer Joe Hockey speaks at a press conference in Parliament House in Canberra yesterday. Hockey insisted he will deliver a ‘responsible and fair’ budget as the government battles to juggle slumping revenue and a huge deficit while avoiding a voter backlash.AFP/SydneyThe Australian government yesterday unveiled a budget it said would support small businesses and promote jobs growth as it sought to stimulate a flagging economy hit by slumping commodity prices. The budget shifted away from a focus on reining in a huge deficit after harsh cuts to welfare, education and health sparked a voter backlash last year and triggered a challenge to Prime Minister Tony Abbott’s leadership. Instead, the government will roll out a Aus$5.5bn (US$4.4bn) small business package, mostly tax cuts, to stimulate investment in the sector, as well as a Aus$4.4bn boost to funding for family-focused policies such as childcare. “In this budget, whilst we are continuing with a credible path of fiscal consolidation of around half a per cent of GDP per year, we are mindful that we continue to deal with some headwinds, but we are coming through the most difficult days,” Treasurer Joe Hockey said. “The Australian economy is going to grow faster. The deficit is coming down.” The budget papers showed that forecast tax receipts had been cut by Aus$52bn over the four years to 2017-18, driven by an almost 50% fall in the price of iron ore – Australia’s biggest export – and weak wages growth. But the treasurer said despite the hit to revenue, the budget deficit was expected to come in at Aus$35.1bn, or 2.1% of GDP, in 2015-16, below analysts’ expectations of more than Aus$40bn. The government also continued to forecast a return to surplus by 2019-20. Australia has struggled to rebalance away from a dependence on mining as an unprecedented resources investment boom helped the economy avoid a recession for more than two decades. Unemployment has edged up over the past year, peaking at an 11-year high of 6.3% in January. Consumer and business confidence were soft on economic concerns. The central bank has sought to stimulate growth by cutting interest rates to a new record low of 2% at its last meeting.  The government forecast that the jobless rate could rise to 6.5% in 2015-16 before declining to 6.25% the following year. Economic growth was projected to remain below-trend at 2.75% in the coming financial year before lifting to around trend growth of 3.25% in 2016-17.  Despite the multibillion dollar spending measures, Capital Economics’ Paul Dales said the stimulatory policies were insufficient to boost growth. “The treasurer has decided to turn his back on the economy and not provide a helping hand,” he said in a note, adding that when last year’s and this year’s budgets were combined, expenditure was reduced rather than increased. The soft economic data, as well as voters’ displeasure with last year’s cutbacks, saw the government take a cautious approach. Defence was another big winner, with the government committing an additional Aus$9.9bn over four years compared to last year. More than Aus$400mn would be allocated over four years for Australia’s involvement in combating the Islamic State group in Iraq with an extra Aus$450mn to fight home-grown terrorism and bolster intelligence agencies.  The government sank $100mn into Great Barrier Reef projects ahead of a Unesco decision in June that could see the site listed as “in danger”. Some of the spending will be supported by an Aus$980.2mn cut to the foreign aid budget and more than $500mn saved following a successful military-led operation to stop asylum-seekers reaching Australia’s shores by boats.  At the same time, Australia is to go after large multinational firms shifting profits offshore to minimise taxes, although no figures for revenue increases were forecast. The budget also outlined proposals to force companies selling digital products to impose a goods and services tax, with projected revenues of Aus$350mn over four years. Labour opposition treasury spokesman Chris Bowen said the budget was about saving Abbott’s job rather than growing the economy. “The fundamental unfairness of last year’s budget disaster remains,” he said. “This is a short-sighted attempt to save Tony Abbott’s job.”