By James Grubel
CANBERRA (Reuters) - Australia's struggling Labor government on Tuesday used the last budget before national elections to delay a long-promised return to surplus, blaming a stubbornly high Australian dollar and lower commodity prices for a dramatic fall in revenues.
With polls pointing to a solid defeat for Prime Minister Julia Gillard at elections set for September 14, Treasurer Wayne Swan locked in 10 years of funding for landmark disability and schools education policies aimed at reversing its downward trajectory, and committed more money to roads and suburban rail projects.
But the budget, with little room for traditional pre-election give-aways and with voters traditionally wary of government borrowing, was unlikely to do much to help revive support.
Instead, Swan has cut a range of benefits to middle-income families, putting off planned tax cuts, increasing a health levy on income, and scrapping a A$5,000 ($5,000) baby bonus popular with voters and which had helped address an aging population.
"This budget keeps our economy strong and head and shoulders ahead of virtually any developed economy," Swan told reporters, adding the budget was designed to with an eye to the economy rather than the looming election.
Swan defended the tough measures by pointing to a A$17 billion drop in expected revenue since his previous budget, with a total write down of A$60 billion over the next four years, and said the measures were needed to support growth and jobs in the face of a flagging global economy.
Australia, a major supplier of coal and iron ore, has enjoyed 21 years of uninterrupted economic growth, surviving the 2008 global financial crisis without dipping into recession thanks to a mining boom fuelled by strong demand from resource hungry China, its biggest trade partner.
But the fall in global commodity prices, coupled with an Australian dollar which has traded above parity with the US dollar for most of the past two years, has hammered company profits and tax revenues.
The 2013/14 deficit was forecast at A$18 billion or 1.1 percent of GDP, down from a A$2.2 billion surplus forecast in October.
Swan outlined A$43 billion worth of savings over four years as part of a plan to return a balanced budget by the year to June 30, 2016.
Swan said the Australian dollar had remained stubbornly high despite a steep fall in Australia's terms of trade over the past year.
At the same time, Swan has dramatically downgraded the revenue from Australia's controversial 30 percent profits tax on coal and iron ore mines, which began on July 1, 2012.
The budget forecasts the tax, originally expected to raise A$13.4 billion over its first four years, will now raise only A$3.3 billion in its first four years.
The government has also slashed expected revenue from its price on carbon after revising down the expected carbon price from June 2015, when Australia links its trading scheme to the European carbon scheme.
The government now predicts a carbon price of A$12.10 a metric ton (1.1023 tons) from June 2015, compared to its previous forecast of A$29 a metric ton. The price of EU carbon permits hit a six-day low of around A$4.20 late on Monday.
To help make up for falling revenues, Swan said the government would use its leadership of the Group of 20 wealthy nations next year to drive a crackdown on tax loopholes and evasion by multinational companies, helping recoup as much as A$4.2 billion.
Amid a shaky world economy and sovereign debt woes ailing Europe, Australia's economic outlook remained positive, with growth forecast to slow to 2.75 percent in 2013-14 from 3.0 percent this year, before climbing back to 3.0 percent for the following three years.
That compares to forecast growth in 2013 of 1.25 percent in Japan, 2.0 percent in the United States and -0.5 percent in the euro area.
In a nation wary of government debt, Swan has long promised to deliver surplus budgets. But he has delivered six straight deficits, in part due to hefty stimulus spending in 2008 and 2009 to help buffer the country from the global slowdown.
He forecast a deficit of A$19.4 billion in 2012/13, or about 1.3 percent of GDP, largely in line with economist expectations.
Net debt is expected to peak at A$191.6 billion, or 11.4 percent of GDP, in 2014-15 - still less than one eighth of the debt levels of major advanced economies.
(Editing by Lincoln Feast)