You are here
Australia unveils budget to counter hit from commodities
[CANBERRA] The Australian government Tuesday 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 wealth 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$5.5 billion (US$4.4 billion) small business package, mostly consisting of tax cuts, to stimulate investment in the sector, as well as a Aus$4.4 billion 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 percent 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$52 billion over the four years to 2017-18, driven by an almost 50 per cent 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$35.1 billion, or 2.1 percent of GDP, in 2015-16, below analysts' expectations of more than Aus$40 billion.
The government also continued to forecast a return to budget 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 per cent in January. Consumer and business confidence were soft on the back of concerns about the economy.
The Reserve Bank of Australia has sought to stimulate growth in non-mining sectors, cutting interest rates to a new record-low of 2.0 per cent at its meeting last year.
The government forecast that the jobless rate could rise to 6.5 per cent in 2015-16 before declining to 6.25 per cent the following year.
Economic growth was projected to remain below-trend at 2.75 per cent in the coming financial year before lifting to around trend growth of 3.25 per cent in 2016-17.
The soft economic data, as well as voters' displeasure with last year's cutbacks, saw the government take a cautious approach this year.
Defence was another big winner, with the government committing an additional Aus$9.9 billion in funding over four years compared to last year.
Some Aus$757 million in 2015-16 and Aus$802.4 million for the following two financial years would be allocated to defence operations.
A central part of the funding is Australia's involvement in combating the Islamic State group in Iraq, where more than Aus$400 million would be allocated over four years.
Australia will also spend an extra Aus$450 million to fight home-grown terrorism and bolster intelligence agencies.
The government also sank US$100 million into projects supporting the Great Barrier Reef ahead of a UNESCO decision in June that could see the heritage site listed as "in danger".
Some of the spending will be supported by a Aus$980.2 million cut to the foreign aid budget. More than US$500 million was also saved following a successful military-led operation to stop asylum-seekers reaching Australia's shores by boats, the government added.
At the same time, Australia is to go after large multinational firms shifting profits offshore to minimise taxes, with 30 companies in the government's sights, although no figures of possible revenue increases were forecast.
The budget also outlined proposals to force companies selling digital products, such as streamed content and e-books, to pay a goods and services tax, with projected revenues of Aus$350 million over the next four years.