By Swati Pandey and Jane Wardell
CANBERRA - Australia's conservative government pledged to deliver a small budget surplus in four years to end more than a decade of deficits that have threatened its prized triple-A credit rating, but blew out the 2017/18 shortfall by abandoning so-called "zombie savings" that have been blocked by a hostile Senate.
Flagging in the polls, the Liberal Party-led coalition government used its annual budget on Tuesday to fast track major rail and road projects, deliver some sweeteners for home buyers in an overheated property market and impose tax hikes on foreign multinationals and the country’s profitable major banks.
Treasurer Scott Morrison promised to deliver a small A$7.4 billion ($5.4 billion) surplus in 2020/21, an improvement on the A$1.08 billion it forecast in the mid-year review in December.
However, he projected a bigger A$29.4 billion shortfall for 2017/18 than the A$28.7 billion forecast at the mid-year review in December as it dropped savings measures, including welfare payment reforms, that had been artificially propping up the finances after opposition parties in the upper house of parliament refused to pass them into law.
"We have listened carefully to the issues the ratings agencies have raised," Morrison told reporters in a briefing ahead of the public release of the budget late on Tuesday, referring to warnings from Standard & Poor’s, Fitch and Moody’s that an inability to balance its finances risked Australia's place among just a dozen countries with the top rating from all three agencies.
"We must live within our means and this is an honest budget," Morrison said. "I think it will be well received, but it’s ultimately up to agencies to make their own decisions."
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.
Among revenue boosting measures was a six-basis point levy on the liabilities of banks with liabilities of more than A$100 billion from July 1, a move that will help the government raise A$6.2 billion through 2020/21 to aid budget repair.
“The only people paying more tax on July 1 are large banks and multinationals,” Morrison said, adding that the government expected to raise A$4 billion this financial year in multinational tax from large public companies and corporates.
HOUSING AFFORDABILITY
With the latest Newspoll 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 fund accounts, to be taxed at a more favorable rate, to use for a purchase deposit.
The Reserve Bank of Australia (RBA) last week held interest rates at a record low 1.50 percent, citing concern about fuelling more borrowing in the red-hot property market, particularly in Sydney and Melbourne.
In another measure likely to appeal to the public after a series of scandals, Morrison increased the potential fines for banks that breach misconduct rules and tougher penalties for bank executives who fall foul of the rules.
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."
The budget forecast real GDP at 2.75 percent in 2017/18, strengthening to 3 percent through to 2020/21. That compares with the RBA’s estimates of 2.75-3.75 percent by mid-2018 through to June 2019.
It sees the unemployment rate at 5.75 percent in 2017/18, easing from a 13-month high of 5.9 percent currently while it pegged the consumer price index (CPI) at 2 percent, climbing to 2.5 percent by 2020/21. Underlying inflation is stuck below the RBA’s target band of 2-3 percent 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. Projects include a A$10 billion national rail program, A$8.4 billion in funding for a Melbourne to Brisbane inland railway, a A$5.3 billion injection into a second airport in Sydney and an extension of the Snowy Hydro scheme.