The Australian government said Tuesday that it remains on target to return the budget to a narrow surplus in the next fiscal year despite the European debt crisis slashing revenue by $20 billion over four years.
The government announced in its midyear budget update that the deficit in the current fiscal year which began on July 1, 2011, will be a higher than expected 37 billion Australian dollars ($37 billion). When the budget was released in May, the deficit was forecast to reach AU$22.6 billion.
Treasurer Wayne Swan said that with new saving measures, the government will deliver a narrow surplus of AU$1.5 billion in the next fiscal year _ AU$2 billion less than forecast in May.
The public service will have to cut expenditure by AU$1.5 billion over four years and a bonus paid to mothers of newborn babies will be cut by AU$400 to AU$5,000.
"It's a modest surplus, but it's one that's achievable given the growth forecast that we've got," Swan told reporters.
"Global economic and financial conditions have deteriorated markedly in recent months, and the risks to global stability from the European sovereign debt crisis have intensified," he said.
The government is forecasting economic growth for the current fiscal year of 3.25 percent, down from the 4 percent forecast in May.
Many economists say that while keeping the promise to deliver a surplus is good politics, the associated spending cuts might not make good economic sense in a slowing economy.
The government's renewed surplus commitment follows the central bank's decision this month to stimulate the economy by cutting its benchmark interest rate by a quarter percentage point to 4.5 percent.
"What the government is doing here is actually taking money back out again solely to get a surplus next year," Deloitte Access Economics director Chris Richardson, an independent forecaster, told Australian Broadcasting Corp. radio.
"It is not clear that it is smart to have the Reserve Bank tipping money, but the government then taking it back out when the outlook especially with Europe is somewhat fraught," he said.
The government forecast that net debt will peak at 8.9 percent of gross domestic product in the current fiscal year _ less than one 10th of the average of major advanced economies. The debt level is expected to fall to 7.7 percent of GDP in three years.
Australia's jobless rate, which was 5.2 percent in October, is forecast to rise to 5.5 percent in the current fiscal year and stay at that level next year.
Australia avoided recession during the global economic crisis due to a mining boom fueled by Chinese demand for iron ore, coal and natural gas. But the mining boom has also strengthened the Australian dollar which has usually been worth more than the greenback for the past year. The strong currency is pressuring industries outside the resources sector such as agriculture, manufacturing and retail.
(This version CORRECTS that revenue shortfall is over four years, not one year.)