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* Budget forecasts surplus of A$7.4 bln in 2020-21
* Forecast deficit for 2017-18 of A$29.4 bln
* Banks slugged with new tax to help balance budget
* Government offers sweeteners for home buyers
By Swati Pandey and Jane Wardell
CANBERRA, May 9 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
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
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
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
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 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 accounts 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 country's red-hot property
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 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. The flagship project is an
A$8.4 billion Melbourne to Brisbane inland railway to begin
construction next financial year.
(Additional reporting by Jonathan Barrett and Cecil Lefort in
SYDNEY; Editing by Shri Navaratnam)