Australia needs to curb spending and make “difficult budget decisions” because tax revenue won’t grow as quickly as it did between 2004 and 2007 during the mining industry’s previous boom, Treasurer Wayne Swan said.
“We shouldn’t expect to see a repeat of the rivers of gold that flowed into the government coffers” when an additional A$334 billion ($359 billion) in tax revenue was generated, Swan said yesterday in his weekly economic notes. “The revenues will still be there, but we shouldn’t expect” a similar surge.
A rising Australian dollar and consumer caution after the global financial crisis are hurting parts of the economy, Swan said. The Australian dollar today advanced to $1.0776, the highest since it was freely floated in 1983. The currency’s gains, spurred by revenue from shipments of coal and iron ore to China, have hit Australian tourism, manufacturing and education.
The March 11 earthquake and tsunami disaster in Japan is forecast to cut commodity export revenue by about A$2 billion, while floods and a cyclone in Queensland state earlier this year will likely cost the economy A$9 billion, Swan said.
Prime Minister Julia Gillard pledged to return the budget to surplus in the fiscal year ending June 30, 2013. Swan in November forecast a A$41.5 billion deficit in the current fiscal year, followed by a A$12.3 billion shortfall the next year. The government projects a A$3.1 billion surplus in 2012-13.
The budget is scheduled to be presented to parliament on May 10. Gillard’s Labor Party lost its majority at the August 2010 general election and needs the support of four non-party lawmakers to pass legislation in the lower house.
Rapid Expansion
Australia benefited from a “massive, A$334 billion upward revision to tax revenue” in the last mining boom, Swan said.
“These near-term challenges are only part of the story,” the treasurer said in his report yesterday. “The outlook for our economy over the years ahead is much more positive, and this brings a different set of challenges.”
The “unprecedented” pipeline of mining and energy projects being undertaken in Australia now is expected to boost prices and wages, he said. Australia has about A$133 billion of minerals and energy projects planned by companies including BHP Billiton Ltd., Rio Tinto Group, Santos Ltd. and Chevron Corp., Resources Minister Martin Ferguson said in November.
“The right thing to do in these circumstances is to restrain spending and budget for surpluses in the years ahead so we don’t compound these pressures on our economy,” Swan said. “This means taking difficult budget decisions now to keep ahead of the challenges, rather than playing catch up down the track when the consequences of inaction could be much more severe.”
‘Cry Poor’
The Australian government wants to use revenue from taxing profits at mining companies such as BHP and Rio partly to lower the corporate tax rate to 29 percent from 30 percent.
The Greens, which will hold the balance of power in the Senate from July, oppose the proposed tax cuts “for big business,” Bob Brown, the party’s leader, said March 29.
Lowering the corporate tax rate to 29 percent would cost the government A$3.1 billion, Greens lawmaker Adam Bandt said yesterday on Channel Ten’s “Meet the Press” program.
“The government cannot cry poor while at the same time cutting off a significant income stream,” Bandt said in e- mailed statement following the television interview. www.bloomberg.com
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