The Australian government forecast a wider budget gap this year as plunging iron ore prices erode tax revenue and spending cuts are blocked by opposition lawmakers.
The underlying cash deficit would deteriorate to A$40.4 billion (US$33.3 billion) in the fiscal year ending June 30 next year from a May estimate of A$29.8 billion, Australian Treasurer Joe Hockey said in Australia’s mid-year economic and fiscal outlook yesterday. The government forecast unemployment would climb to 6.5 percent by the middle of next year, higher than its May projection of 6.25 percent.
“We are now witnessing the largest fall in the terms of trade since records began in 1959,” Hockey told reporters in Canberra, referring to export prices relative to import prices. “This has been faster and deeper than anyone expected.”
Australian Prime Minister Tony Abbott’s Liberal-National Party coalition, which was elected 15 months ago promising to end the “debt and deficit disaster” of the former government, has faced Australian Senate opposition to savings measures while falling prices of key exports have cut tax revenue.
The fall in iron ore prices is forecast to reduce company tax payments by A$2.3 billion from this year to next year and A$14.4 billion over the forward estimates, yesterday’s documents showed.
“The government’s in a very difficult position — the current situation is unsustainable and spending has to come down,” JPMorgan Chase & Co Sydney-based economist Tom Kennedy said. “Fiscal policy is going to be pretty restrictive over the next four or five years as the government looks to balance the books, so monetary policy is going to have to do most of the work, which means rates will remain at very low levels or potentially the RBA [Reserve Bank of Australia] could cut.”
The Australian dollar fell and was trading at US$0.8223 at 2:46pm in Sydney from US$0.8229 before the revised forecasts were issued. Traders are pricing in at least one rate reduction by the central bank in the next 12 months, according to a Credit Suisse Group AG index based on swaps.
The government kept its forecast for economic growth of 2.5 percent in the fiscal year ending next year after third-quarter data showed GDP grew just 0.3 percent from the previous three months, the slowest pace in 18 months.
The economy is struggling to transition to non-mining drivers of growth as a resources investment boom wanes even as the Reserve Bank of Australia has held its benchmark cash rate at a record low 2.5 percent for 16 months.
The revised deficit estimate for the current year is larger than a median estimate of A$37 billion from a survey of 13 economists by Bloomberg News. The papers project a return to budget surplus in 2019-2020.
The mid-year forecast sees a next year to 2016 deficit of A$31.2 billion compared with a May estimate of A$17.1 billion; a 2016-2017 shortfall of A$20.8 billion compared with a previous A$10.6 billion. For 2017-2018, the government sees a gap of A$11.5 billion compared with a May estimate of A$2.8 billion.
NO VIRUS BLUES: A SEMI Taiwan official said that the virus does not slow down the global semiconductor industry’s investment in manufacturing equipment The production value of the nation’s semiconductor industry is expected to grow 16.7 percent this year from last year, outpacing the global industry’s 3.3 percent growth, industry association SEMI said yesterday. That would help Taiwan safeguard its second spot in the global semiconductor market with a production value of more than NT$3 trillion (US$102.73 billion), SEMI Taiwan president Terry Tsao (曹世綸) told a media briefing in Taipei for the Semicon Taiwan trade show beginning today. The global semiconductor industry’s production value is expected to increase to US$426 billion this year, SEMI said. In terms of semiconductor equipment investment, equipment billings from Taiwanese firms
Intel Corp has received licenses from US authorities to continue supplying certain products to Huawei Technologies Co (華為), a company spokesman said yesterday. Washington has been pushing governments around to world to squeeze out Huawei, saying that the telecom giant would hand data to Beijing for espionage. From Monday last week, new curbs have barred US companies from supplying or servicing Huawei. This week, the state-backed China Securities Journal reported that Intel had received permission to supply Huawei. China’s Semiconductor Manufacturing International Corp (SMIC, 中芯國際), which uses US-origin equipment to make chips for Huawei and other companies, last week confirmed that it had sought
INVEST IN TAIWAN: A metal components casting firm and the world’s largest maker of aluminum bicycle rims also obtained approvals to join the program Solar Applied Materials Technology Co (SOLAR, 光洋應用材料), a part of Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) “green supply chain,” has pledged to invest NT$1 billion (US$34.1 million) to build a new plant at the Tainan Technology Industrial Park (台南科技工業區), the Ministry of Economic Affairs said yesterday. SOLAR has been collaborating with TSMC to extract precious metals from waste and reuse them as “sputtering target” material in high-end semiconductor manufacturing, a TSMC press release issued in May said. Established in 1978, SOLAR also offers key materials and integrated services to customers in the optoelectronics, information and communications technology, petrochemicals and consumer electronics industries,
Swancor Renewable Energy Co (上緯新能源) yesterday announced plans for a 4.4 gigawatt (GW) offshore wind project off Miaoli County as part of its commitment toward Taiwan’s energy transformation, the company said in a statement. The “Formosa 4” project includes three deep-water wind farms 18km to 20km off the coast, Swancor Renewable CEO Lucas Lin (林雍堯) said, adding that planning for the project began last year. A proposal for Formosa 4 was this week submitted to the Environmental Protection Agency (EPA), the company said. Swancor Renewable jointly developed the Formosa 1 project, a 128 megawatt (MW) wind farm about 4km off Miaoli and the