With growth slowing, Australia faces some hard fiscal decisions

EVEN if all the changes to the tax system announced in recent weeks come to pass when Australia's federal budget is unveiled on Tuesday, it will not repair the deficit.

There would still need to be further structural adjustments. Investment bank Goldman Sachs has forecast that the budget deficit for this financial year would hit A$48 billion (S$50.6 billion). But then, given that government spending accounts for about 25 per cent of gross domestic product, any drastic cut to expenditure will have an impact on the overall economy. So the government of Prime Minister Tony Abbott has to perform a balancing act. Unfortunately for him, the task has been made that much harder because the economy is showing signs of slowing.

One of the budget proposals is that the 10 per cent goods and services tax (GST) be extended to cover intangible imports, such as downloading of films and software. There is also a suggestion that the GST be imposed on private school fees and, more controversially, private hospital insurance and treatment. Yet another proposal is that the old age pension be denied to those whose assets reach a certain threshold. If this proposal is put into force, more than 90,000 people will no longer qualify for a government pension and another 250,000 or so will have their pensions cut. Bank deposits are also a target: the government has indicated that there could be a tax on deposits. In this instance, bankers are opposed and have warned that such a tax may make it harder for banks to raise deposits and thus affect their ability to fund economic expansion in future.