Canberra: The Australian government pledged to deliver a small budget surplus in 2020-21, slapping big banks with new taxes to end more than a decade of deficits that have threatened its prized triple-A credit rating.
Flagging in the polls, the Liberal Party-led coalition conservative government, also promised to fast-track major rail and road projects and delivered some sweeteners for home buyers in an overheated property market in its annual budget on Tuesday.
Treasurer Scott Morrison said the country’s profitable banks, which have been under fire in recent months amid a series of misconduct scandals, would bear the brunt of a budget “re-set” as he abandoned so-called “zombie savings” worth some A$13 billion.
Those savings, including welfare reforms, had artificially reduced the red ink in the budget after they were blocked by opposition lawmakers in a hostile Senate where the government has a wafer-thin majority.
The backflip resulted in a bigger A$29.4 billion deficit for 2017-18 than the A$28.7 billion forecast at the mid-year review in December. But the budget forecast a A$7.4 billion surplus in 2020-21, an improvement on A$1.08 billion at the mid-year review.
Australia’s A$1.7 trillion economy has outperformed many of its rich world peers since the global financial crisis, but it has in more recent years struggled to manage the end of a mining investment boom that underpinned much of its wealth.
“We must live within our means and this is an honest budget,” Morrison said, adding that a new six-basis point levy on big banks‘ liabilities, to kick in on July 1, would raise A$6.2 billion over the next four years.
Morrison described the measure, along with a A$8.2 billion income tax increase on workers, as “basically a Senate tax” to get the budget back into balance as demanded by ratings agencies or risk losing its triple-A credit rating.
Marie Diron, associate managing director of Moody’s Investors Service, said the agency assessed Australia‘s fiscal strength as “very high, a key support to the government’s triple-A raiting and stable outlook” after the budget. Diron added that the removal of the zombie measures “enhances the transparency and predictability of budget outcomes, a credit positive.”
Mervyn Tang, director of Asia-Pacific sovereigns at Fitch Ratings, said the new revenue measures in the budget implied a faster reduction in the government deficit. He said Fitch would look closer at new policy measures on the economy and housing market, “factors we have identified as rating sensitivities in our previous review.”
Standard & Poor’s did not immediately comment on the budget.
But Australian Bankers’ Association chief executive Anna Bligh criticised the new tax, which Morrison warned banks against passing on to consumers.
“Contrary to the government’s claim that the tax will only be levied on banking liabilities, the reality is that it will affect the entire banking system,” Bligh said in a statement. “This new tax is not a well thought out policy response to a public interest issue, it is a political tax grab to cover a budget black hole.”
With the latest news poll showing the government trailing the opposition Labor Party at 52 points to 48 points, the budget contained measures to appease an electorate angry that a surging property market means they are unlikely to achieve the great Australian dream of owning their home.
Morrison said the government will establish a A$1 billion National Housing Infrastructure Facility and allow first time home buyers to save extra funds into their pension accounts to use for a purchase deposit.
The Reserve Bank of Australia (RBA) last week held interest rates at a record low 1.50%, citing concern about fuelling more borrowing in the country’s red-hot property market.
Another A$1.2 billion will be raised over the next four years by imposing a levy on foreign workers, another issue that has been heavily debated publicly, with Prime Minister Malcolm Turnbull promising earlier this year “Australian jobs for Australians.” Another A$4 billion will come from taxes on multinationals as the government expands its anti-tax avoidance laws to include trusts and foreign partnerships.
The budget forecast real GDP at 2.75% in 2017-18, strengthening to 3% through to 2020-21. That compares with the RBA’s estimates of 2.75 to 3.75% by mid-2018 through to June 2019.
It sees the unemployment rate at 5.75% in 2017-18, easing from a 13 month high of 5.9% currently while it pegged the consumer price index (CPI) at 2%, climbing to 2.5% by 2020-21. Underlying inflation is stuck below the RBA’s target band of 2 to 3% with wages crawling at their slowest pace on record.
Morrison outlined plans to deliver A$75 billion in infrastructure funding and financing over the next years as the base of Australia’s next growth wave. The flagship project is an A$8.4 billion Melbourne to Brisbane inland railway to begin construction next financial year.