New Australian Treasurer Chris Bowen yesterday pledged to run a tight fiscal policy to restore the country’s budget surplus, despite slower growth from major trading partner China and an end to a China-led resources boom.
In his first major speech since taking over from former Australian Treasurer Wayne Swan three weeks ago, Bowen committed to continue the fiscal strategy of his predecessor by running deficits for the next two years before bringing the budget to balance by the 2015 and 2016 financial year.
“If we were to rush to surplus now, it would be a hammer blow to growth,” Bowen told the National Press Club in Canberra.
In May, Bowen’s center-left Labor Party pledged to deliver a A$6.6 billion (US$6.09 billion) surplus in the 2016 to 2017 financial year, having racked up consecutive years of deficit since 2008 as a tactic to fund stimulus to help Australia avoid recession during the global crisis.
Bowen said changing Canberra’s budget strategy would be a risk to economic growth — currently at a modest 2.5 percent — as investment in massive resource projects plateaus and other sectors, like construction, retail and manufacturing, struggle to pick up the slack.
“I think our fiscal settings are broadly right,” said Bowen, who was appointed treasurer on June 27 after the Labor Party dumped former Australian prime minister Julia Gillard in favor of Kevin Rudd.
Bowen’s commitment to fiscal prudence came as ratings agency Standard & Poor’s affirmed Australia’s prized “AAA” credit rating and retained its stable outlook.
“The stable outlook is based on our assumption that Australia’s historically conservative budgetary policies will remain in place, such that fiscal deficits continue to narrow and that the general government debt burden will remain low,” S&P credit analyst Craig Michaels said.
Despite its string of deficits, Australia’s net debt is expected to peak at A$191 billion, or 11.4 percent of GDP, in the current financial year — less than one-eighth the debt levels of major advanced economies.
Bowen said China’s move to tighten credit and target single-digit long-term growth would be a factor in lower prices for Australia’s commodity exports as it transitions from a mining investment boom to higher production and exports.
“Any probable scenario for China includes more volatility in prices for our key commodity exports and, therefore, our terms of trade,” Bowen said.
China is Australia’s biggest export market, with exports there totaling about A$73 billion last year.