Australian government avoids recession but voters say thanks for nothing

Reuters News
Posted: May 13, 2013 3:45 AM
Australian government avoids recession but voters say thanks for nothing

By James Grubel

CANBERRA (Reuters) - Around 400,000 first-time voters go into Australia's September elections with no idea of economic hardship, adding to Treasurer Wayne Swan's mounting problems as he delivers what is shaping up as his last, and most difficult, budget on Tuesday.

Swan is confronted by a slowing economy, a mining boom which is nearing its peak, falling tax revenue and a political promise to rein in spending, leaving him with no money to spend on pre-election handouts.

Instead, he wants the budget to focus on his economic credentials and hopes to win kudos by showing he can be a tough manager of government finances after delivering consecutive deficits since 2008-09, due to stimulus spending.

If he doesn't lay out a credible plan to return to surplus, the polls, already near record lows for the Labor government, could worsen ahead of elections set for September 14.

Australia's economy, unlike most other developed nations, kept growing in the aftermath of the 2008 global downturn. Australia has notched up 21 years of uninterrupted economic growth, helped by a mining boom fuelled by demand from China.

Yet voters give the government no credit for keeping the economy strong, due to a sense that Australia remains immune from global developments.

These include a generation of first-timers who have never experienced a recession and who make up around three percent of the electorate in Australia, where voting is compulsory.


Opinion polls point to a thumping defeat for Prime Minister Julia Gillard at the polls, with disgruntled first-time voters emerging as an important bloc given that Gillard won the last election in 2010 over the conservative opposition by fewer than 40,000 of the 13 million votes cast.

"The economy is not really much of an issue for me, no," said Adelaide student Alex Bachmatiuk, 19, who will vote for the first time in September.

Bachmatiuk said she was not concerned about whether the budget remains in deficit or returns to surplus, and added whatever is announced on Tuesday would be unlikely to change her plans to vote for the opposition.

Melbourne student Oliver Taylor, 18, said much the same, despite fierce political debate about government finances.

"The media's been reporting all sorts of things about Australia losing its surplus," Taylor said. "But I'm not overly worried about the surplus-deficit."

"I think the economy's in a lot of trouble, but I feel we'll just get out of trouble again," he said.

Both were more concerned about government plans for university funding than wider economic management, but accept there is little Swan can do to change their views.


Much of the tough medicine in the coming budget has already been released, including a slowing in the growth of Australia's foreign aid and plans to target tax perks for foreign companies.

In the past two weeks, it has also abandoned planned tax cuts to start from mid-2015, scrapped planned rises in payments to families, and announced a 0.5 percent rise in a health-care levy to help fund disability services.

The government has been hit by a $17 billion shortfall in forecast revenue since last November due to lower commodity prices and a high Australian dollar, forcing Swan to abandon his long-held promise to deliver a surplus for the year to June 30.

A Reuters poll of 13 market economists predicts Swan will unveil a deficit of around $17 billion this financial year, and $10 billion for 2013-14, down from around $44 billion last year.

The official forecast for economic growth is expected to be trimmed to 2.75 percent for the current year and 2013-14, down from the previous forecast of 3.0 percent each year and below the long-term trend of around 3.25 percent.

The official forecast, however, will be closer to the central bank's forecast of 2.5 percent this year and 2.5 to 3.5 percent the following year.

Yet things still look relatively rosy. Inflation is under control and the central bank last week cut official interest rates to a record low 2.75 percent.

Economists also say the final budget figures are unlikely to concern financial markets, which have plenty of appetite for Australian-issued debt.

"Despite the fiscal slippage, we expect the agencies to endorse Tuesday's budget, confirming Australia's AAA rating and stable outlook, underpinned by low net debt," said RBC economist Su-Lin Ong.

Economist Stephen Koukoulas, a one-time adviser to Gillard, said while Australia's economic indicators were among the best in the world, voters were still unwilling to give the government any credit.

"The fact we didn't get hurt so badly in the global financial crisis has created a sense of unrealistic optimism," Koukoulas told Reuters.

"I wouldn't swap our position here in Australia for most other countries. But the government is clearly getting no credit for it."

(Editing by Paul Tait)