Advertisement

Australian conservatives seek to restore faith with no surprises budget

By Matt Siegel CANBERRA, May 12 (Reuters) - - Australia's conservative government on Tuesday followed through on its pledge to deliver a "no surprises" budget, handing down a document light on radical reform but heavy on pledges to return to surplus despite a plunge in commodities prices. Prime Minister Tony Abbott and Treasurer Joe Hockey were savaged in 2014 for handing down an unpopular budget that slashed spending on social welfare programs in order to rein in spiralling deficits. Major changes to the education and healthcare systems in last year's budget were knocked back by an unruly upper house senate following a public outcry that saw the government's approval ratings dip to record lows. This budget instead focussed on popular items such as tax breaks for small businesses, increased childcare subsidies and legislation allowing for a crackdown on tax evasion by big multinational companies. Selling the plan will be vital for Abbott, who earlier this year narrowly survived a leadership challenge from within his Liberal Party, in resisting pressure to break the ongoing deadlock in parliament by calling a snap poll. "Today we have taken steps to continue repairing the budget with sensible savings and a prudent approach to spending," Hockey said in an address to parliament. "We are redirecting funding to areas, such as small business, child care and infrastructure, which will boost growth and create jobs." Australia's finances have taken a beating as falling prices for iron ore, the country's single biggest export earner, have eaten into company profits and wages. Some A$52 billion in tax receipts were lost over the four years to 2017/18 according to the budget, with A$20 billion of that coming from the plunge in iron ore prices. The government is hoping that new free trade agreements with China, Japan and South Korea, together with a weaker Australian dollar and improvement in the terms of trade as major gas projects come on stream, will help offset those losses. Record low interest rates, together with falling prices for petrol and electricity, are helping drive an uptick in household spending and investment in the country's red hot property and construction markets, it said. The government insisted in the budget that it would be able to ride out the bumpy transition from a resource dominated economy to a more diverse one focussed on services without raising significant new revenues or slashing spending outlays. Having outperformed most of its developed nation peers since the global financial crisis, Australia is expected to grow a modest 2.5 percent this year and 2.75 percent next year, rising to 3.5 percent by 2017/18. Some analysts had questioned whether Australia's coveted triple-A credit rating from all three major agencies might come under pressure without a credible path to surplus, speculation Hockey slapped down in an interview with Reuters earlier this month. (Full Story) Australia's net debt is forecast to rise to 18 percent of gross domestic product (GDP) by 2016/17, already low by international standards, before falling to just 7.1 percent of GDP by 2025/26. The deficit is set to narrow from 2.6 percent of GDP in 2014/15 down to 0.4 percent of GDP by 2018/19, placing it on track for a return to surplus before the end of the decade. (Editing by Lincoln Feast)