Australia plans $3.8B budget surplus in 2 years

AP News
Posted: May 10, 2011 7:31 AM
Australia plans $3.8B budget surplus in 2 years

Australia is sticking to its schedule of returning to a budget surplus in two years despite devastating floods at home and recent natural disasters in Japan and New Zealand that are slowing economic growth.

Deputy Prime Minister Wayne Swan, who is also treasurer and architect of his government's fourth annual budget, outlined to Parliament on Tuesday an economic blueprint for the fiscal year starting July 1 that would achieve a 3.5 billion Australian dollar ($3.8 billion) surplus in the 2012-13 year on the crest of a mining boom.

A year ago, the Treasury had forecast a smaller surplus of AU$1 billion for the same fiscal year.

The improved outlook comes despite natural disasters at home as well as in Japan _ Australia's most important trading partner after China _ and in New Zealand, a near neighbor and one Australia's few free trade partners.

An earthquake devastated New Zealand's second largest city, Christchurch, and killed at least 169 people on Feb. 22. Japan's northeast coast was laid waste by an earthquake and tsunami on March 11, killing more than 25,000 people.

The Treasury predicts that record floods across much of the Australian east coast since November combined with a major cyclone that ruined crops, inundated coal mines and destroyed vital infrastructure such as rails and bridges would cut economic growth by half a percentage point in the current fiscal year and cost AU$9 billion in lost exports.

The flooding killed 35 people, damaged or destroyed more than 35,000 houses and inundated downtown Brisbane, Australia's second-largest city.

The government has already spent AU$5.4 billion on reconstruction, given AU$900 million in emergency relief to victims and introduced a new flood tax to raise AU$1.8 billion to help meet the damage bill.

The Japanese and New Zealand disasters would drag economic growth down a further quarter percentage point to 2.25 percent for the year by reducing demand for Australian raw materials, the Treasury documents predict.

"These events have shaken our economy, but they have not knocked it off course," Swan told Parliament.

Australia's AU$1.3 trillion economy _ underpinned by a resource boom driven by Chinese demand for iron ore, coal and natural gas _ will speed up to 4 percent growth in 2011-12, boosted by disaster reconstruction spending in the northeast state of Queensland.

The Australian Chamber of Commerce and Industry, a peak business group, said while the government had found more than AU$5 billion in savings in the next fiscal year, it needed to cut far deeper into public spending.

"It's still relying heavily on good fortune from north Asia to bring us back into surplus," the chamber's chief executive Peter Anderson told The Associated Press.

International aid agency Oxfam applauded the government's AU$500 million boost in foreign aid spending to AU$4.84 billion. The government said its foreign aid would rise to 0.35 percent of gross national income next fiscal year and to 0.5 percent by 2015-16.

Australia will also increase its refugee intake by 4,000 places over the next four years to 14,750 places a year.

Treasury forecasts the current fiscal year will end with a deficit of AU$49.4 billion. The deficit will reduce to AU$22.6 billion in 2011-12 when net debt will peak at AU$106.6 billion, or 7.2 percent of GDP.

The resource boom is expected to continue to gather pace, with AU$76 billion earmarked for new mining investment in the next fiscal year _ eight times more than the annual investment figure before the boom began in 2000.

Australia avoided recession during the global economic crisis thanks to billions of dollars in government stimulus spending that turned a projected record surplus in the 2008-09 fiscal year into a record deficit.

Swan said the government had to contain spending and deliver an early surplus as the resource sector continued to deliver Australia record trade surpluses, drive up wages and fuel inflation.

Australia's jobless rate is expected to fall from 4.9 percent in March to 4.5 percent in 2012-13.

The government plans to halve processing times to 10 days for temporary visa applications by foreign specialist workers needed in mining projects.

Parliament is expected to pass the budget within a few months, but likely with amendments.