Australia needs to find “significant savings” in the budget to be presented in May, as the government remains determined to return to surplus in the next fiscal year, Australian Treasurer Wayne Swan said.
“One of the lingering effects of the global financial crisis has been a massive writedown of tax receipts,” Swan wrote in his weekly e-mailed economic note yesterday. “This will inevitably flow through to the budget bottom line and obviously means we will have to find significant savings in the May budget.”
Business profits unexpectedly dropped in the three months through December last year by the most in two-and-a-half years as earnings weakened at mining and financial companies.
Australia posted its first trade deficit in 11 months in January, as weaker shipments of iron ore and coal contributed to the biggest drop in total exports in almost three years.
Under the Treasury’s midyear review released in November last year, government revenues were down A$140 billion (US$148 billion) in the five years to fiscal 2012-2013 from the pre-crisis forecast, Swan wrote.
There has been further weakness in company tax receipts since then, according to the treasurer.
The country’s terms of trade are also expected to gradually decline in the years ahead, as global commodity production increases, he said.
Still, Australia’s 0.4 percent GDP growth in the fourth quarter was “a solid result” given the European debt crisis, and returning the budget to surplus is the right strategy for the economy, he said.
“Maintaining our fiscal rigor is absolutely essential,” Swan said. It “provides the Reserve Bank with maximum flexibility to respond to any further deterioration in the global economy.”
The Reserve Bank of Australia left its benchmark interest rate unchanged at 4.25 percent on Tuesday and reiterated that it has scope to lower borrowing costs if demand weakens “materially.”
The central bank, which implemented two quarter-percentage point rate reductions in the final months of last year, said that monetary policy was “appropriate for the moment.”
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