Mon, Apr 09, 2012 - Page 10 News List

Australia right in aiming for budget surplus: Swan


Australia’s low unemployment compared with other industrialized nations and record investment make returning the budget to surplus the right strategy, Treasurer Wayne Swan said.

“With solid growth, contained inflation, very low public debt, low unemployment and a record pipeline of investment, we are the envy of virtually every advanced economy,” Swan said in his economic note yesterday. Returning the budget to a surplus during fiscal 2012-2013 is “the right strategy for an economy returning toward trend growth.”

Swan, who is preparing Australia’s budget for release on May 8, faces the challenge of balancing a drop in revenue against a government pledge to deliver a surplus in the 12 months through June next year. While the resources boom is benefiting Western Australia and Queensland, retailers and manufacturers are facing tough conditions in other states.

In the past month, Australian government reports have shown fourth-quarter GDP expanded at half the pace economists forecast, and the weakest exports in almost three years led to Australia’s first trade deficit in 11 months in January.

Mining investment in Australia, the world’s biggest exporter of iron ore and coal, is estimated to reach A$120 billion (US$124 billion) next year, an increase of around 155 percent in two years, Swan said last month.

“Claims that the return to surplus is putting growth at risk overlook the fact that the government’s budget strategy has been clear and consistent for a long time,” Swan said. “Returning the budget to surplus is our best defense and is a key sign of our strong economy.”

The Reserve Bank of Australia (RBA) held interest rates unchanged on Tuesday last week, while signaling it may resume cutting rates as soon as next month if weaker-than-forecast growth slows inflation.

Returning the budget to surplus is “the right thing to do,” Prime Minister Julia Gillard said on April 1, while pledging to support jobs. Australia has battled natural disasters, including record floods in Queensland last year, that have hampered economic activity, including tourism as well as export of coal.


China is Australia’s biggest trading partner, and the RBA has said it expects Chinese demand for commodities to remain strong even as recent data painted a mixed picture of the world’s second-largest economy.

Australia has grown more dependent on resources as employment in manufacturing dropped by about 30 percent since 2007, while mining and government payrolls rose by more than 50 percent, HSBC Holdings PLC estimates.

“Maintaining our credible fiscal policy also sends a strong message of confidence to investors across the world in uncertain times,” Swan said.

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