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Australia set for ‘modest’ budget surplus

Australia is on track for a modest budget surplus next financial year, Treasurer Wayne Swan said Sunday ahead of this week’s unveiling of his fifth budget for the mining-powered economy.

Australia, which survived the global financial crisis without dipping into recession, has previously been forecast by the government to deliver a Aus$1.5 billion (US$1.6 billion) surplus for the 2012/13 fiscal year beginning July 1.

An excess would represent one of the fastest budget reversals in Australian history, overcoming a current year deficit predicted to be at least Aus$37.1 billion.

“It will be a modest surplus, the surplus will build over time,” Swan told the Nine Network on Sunday, without revealing a precise figure.

The Treasurer said delivering a surplus had been made more difficult by revenue writedowns of Aus$150 billion over the past five years, and the budget was expected to contain significant belt-tightening.

Australia is benefiting from low unemployment and a mining and resources investment boom.

“A budget surplus is the clearest sign we can send of the strength of the Australian economy,” said Prime Minister Julia Gillard, adding returning to surplus was “the right thing to do”.

But the government admits that while Australia’s economic fundamentals are strong, life is tough for businesses outside the mining sector, particularly industries which are being squeezed by the high Australian dollar.

“We understand this isn’t everybody’s boom,” Gillard said.

On Friday the Reserve Bank of Australia slashed its growth forecast for the 12 months to June 2012 from 3.5 percent to 2.75 percent, citing sluggish exports due to global economic turmoil and the robust Australian dollar.

The statement came just three days after it cut its official interest rate by 50 basis points to 3.75 percent — its largest reduction since February 2009 — in a move seen as jump-starting sluggish growth.

Some economists saw delivering a budget surplus as needlessly weakening the economy in the circumstances.

“It is just illogical,” former RBA board member Warwick McKibbin told Dow Jones Newswires this week.

DeLoitte Access Economics analyst Chris Richardson said he too would not want to see the government cut too hard given the economy’s fragility.

But he said if the government’s cost-cutting budget prompted the central bank to cut interest rates further, it could peg back the Australian dollar, improving margins for manufacturing, tourism and education.

Shane Oliver, chief economist at AMP Capital Investors, was in favour of returning to surplus, and estimated it would be about Aus$1 billion.

“The economic backdrop is not so bad that we need further fiscal stimulus,” he said. “If we can’t get back to surplus when unemployment is around 5.2 percent and commodity prices are high when will we?”

The budget to be released on Tuesday comes amid mounting speculation that Prime Minister Gillard, who is performing dismally in opinion polls, will face a challenge to her leadership from within Labor’s ranks.

Swan dismissed the question, saying: “The prime minister is as tough as nails, and she ain’t going anywhere.”