Australia’s government yesterday said its tax revenue has continued to fall in recent months, as company profits declined and the mining boom that kept the nation out of recession cools.
Australian Prime Minister Julian Gillard said revenue for the fiscal year ending June 30 would be A$12 billion (US$12.4 billion) less than the Treasury Department forecast in October, when a slender budget surplus of A$1.1 billion was predicted.
Tax revenue is now expected to reach A$340 billion in the current fiscal year, as businesses struggle against a strong currency to remain internationally competitive. Economists expect a deficit of between A$10 billion and A$20 billion for the current year.
Prices for commodities such as iron ore and coal, Australia’s biggest exports, had retreated from record highs because of weak global demand and increasing supply.
Gillard warned that a tough annual budget would be released on May 14, her center-left Labor Party government’s last before general elections on Sept. 14 that it faces an uphill battle to win.
“There are no easy choices,” Gillard said of pending budget cuts. “I find these decisions both urgent and grave.”
The government in December last year walked away from a two-year-old promise to deliver a budget surplus in the current fiscal year that would have been its first surplus since the global financial crisis.
The government injected billions of dollars into the economy through stimulus spending to avoid recession as the financial crisis unfolded. While national debt is modest compared with most other developed countries, the opposition calls it evidence of poor economic management.
Bank of America Merrill Lynch economist Saul Eslake predicted an A$20 billion deficit in the current fiscal year. He doubted whoever governs for the next three-year term after the elections would deliver a surplus without big spending cuts.
“It will be difficult to credibly forecast a budget surplus during the life of the next parliament without drastic policy action,” Eslake told Australian Broadcasting Corp radio.
Shane Oliver chief economist of investment company AMP Capital said the A$12 billion tax shortfall was in line with his predictions of a deficit between A$10 billion and A$15 billion.
IMF director for Asia and the Pacific Anoop Singh said Australia’s weaker government finances were not a concern because of the country’s low debt at just 10 percent of GDP. Australia is one of a few countries with a triple-A sovereign debt rating from the major credit rating agencies.