The Federal Government has revealed a round of spending cuts to the tune of $6.8 billion over the next four years to help the nation’s balance sheet return to black.
Treasurer Wayne Swan said global volatility, particularly in Europe and the USA, combined with a dampening of China’s growth, will see Australia’s projected tax revenue drop $20 billion over the next four years.
Swan reported that Australia’s economic output would ease to 3.25 percent this financial year, down from four percent, with this year’s budget deficit rising from $22.6 billion to $37.1 billion.
In an initiative economists have regarded as a mini-Budget, Swan’s spending cuts are likely to quell inflation and allow the Reserve Bank to cut interest rates next month.
Australian Chamber of Commerce and Industry director of economics Greg Evans generally supported the savings measures but it “may still not be enough to return to sustained surplus,” he said. “Developments over the past 12 months have exposed the hazards of forecasting a wafer thin surplus in an uncertain economic environment.”
He presented a cautious outlook adding that slowing growth and a delicate labour market, with the backdrop of Europe’s burgeoning crisis, would test Australia’s resilience.
Business Council of Australia president Tony Shepherd came out in favour of the mini-Budget, indicating it would be a signal to spend. “It will give us the firepower to step in and stimulate the economy to keep Australia strong if the global situation deteriorates substantially,” he said.
“The private sector is sitting on a lot of capital and really the best thing to do from an economic point of view is look at ways and means of encouraging the private sector to spend that capital.”
HSBC’s chief economist for Australia and New Zealand Paul Bloxham compared the measures with the AAA rating awarded by Fitch. “The Australian government’s sovereign position is very strong when compared with the rest of the developed world, and today’s release confirms that.”
Bloxham implied that a budget surplus in 2012/13 was unlikely due to “slower than expected growth [which] has pushed out the bulk of the fiscal contraction needed to get there” and said the modesty of the spending cuts would have “few implications for RBA rates”.