Australian Treasurer Wayne Swan warned a world economic rebound is unlikely to boost government revenue much as he seeks to deliver the nation’s first budget surplus since the global financial crisis.
“When it comes to the structural underpinnings of the revenue base, we are in a tough new world,” Swan said in a speech today in Sydney at a meeting of the Australian Business Economists. “This is a crucial point: even if we were to witness an enduring global recovery, we should not expect to see a similar recovery in revenues.”
The threat to the global recovery from China’s growth slowdown is adding pressure on budgets already strained by Europe’s weaker expansion and elevated unemployment in the U.S. Calls for fiscal austerity from Canberra to Brussels are being met by growing opposition to tax increases and subsidy cuts, putting more of the onus on monetary policy to stimulate demand.
“Australia’s drive for a surplus is more about politics than economics,” said Annette Beacher, the Singapore-based head of Asia-Pacific research at TD Securities Inc. The government made the pledge at a time when the global outlook was stronger and it’s now relying on the central bank to lower interest rates to spur the economy, she said.
Swan said today the surplus will require spending cuts as global financial turmoil and shifts in the tax base hurt revenue. “A number of influences -- both contemporary and structural -- are combining to make that surplus much more difficult to achieve,” he said.
Prime Minister Julia Gillard, whose government is slumping in opinion polls and faces an election next year, has pledged to end four years of deficits in the fiscal year that begins July 1. Her government is scheduled to release its budget plan May 8 in Canberra, and Swan maintained that a surplus is “a vital economic imperative.”
“They’re treading into dangerous territory here by saying ‘ok, we’ll keep our fiscal target in place and we’ll just leave you to manage the rest of the economy,’” she said, referring to the Reserve Bank of Australia.
Asian stocks declined today, the fourth drop in the past five sessions and on course for its first monthly fall since November.
The MSCI Asia Pacific Index (MXAP) sank 0.8 percent as of 11:44 a.m. in Tokyo. The Australian currency was the day’s biggest loser against the U.S. dollar, weakening 0.3 percent at 11:45 a.m. in Tokyo, and the yen’s 0.4 percent was the biggest gain among 16 major currencies.
In Japan, retail sales rose more than economists forecast in February, increasing 3.5 percent from a year earlier, a third straight monthly rise, the Trade Ministry said in Tokyo. South Korea returned to a current-account surplus in February as exports rose amid signs of an improving U.S. economy and as the euro-area debt crisis eased, a report showed.
Earlier in Wellington, a survey released by ANZ National Bank Ltd. (ANB) showed New Zealand business confidence rose to a seven-month high in March as risks of a global downturn eased and amid signs of a domestic housing recovery.
Separate reports across Europe later today will probably show U.K. house price gains slowed this month to 0.2 percent, the increase in Spain’s consumer price index easing to 1.9 percent and the German unemployment rate holding at 6.8 percent, according to Bloomberg News surveys of economists. A final estimate on euro-zone consumer confidence is also scheduled to be released.
In the U.S., a Commerce Department report may show fourth- quarter gross domestic product grew at a 3 percent annual rate, unchanged from a prior estimate, according to a survey of economists. A Labor Department report may show initial claims for unemployment benefits were little changed at 350,000 in the week ended March 24, another survey showed.
Australia was the only major industrial economy to avoid a recession during the global downturn of 2009. Still, job growth stagnated last year and, until two interest-rate cuts in late 2011, the central bank maintained the highest benchmark borrowing cost in the developed world to temper inflation as a mining investment boom accelerated.
Governments across the region are grappling with slower tax revenue and trying to find ways to cut spending without exacerbating elevated unemployment.
Japan will draft a stopgap budget for the first time in 14 years as the nation’s parliament struggles to pass a spending bill before the new fiscal year starts on April 1.
At least 3,000 Indonesian college students, members of labor unions, non-government organizations and political parties took to the streets in Jakarta this week to demonstrate against a plan to raise the price of subsidized fuel by 33 percent.
India, Asia’s third-largest economy, has missed its deficit target three times in the past 10 years. Finance Minister Pranab Mukherjee fell short of his revenue goal for the current fiscal year as economic growth slowed and the government met only 35 percent of a program to raise 400 billion rupees ($8 billion) by selling state assets. The government this month proposed a cap of less than 2 percent of GDP in the next fiscal year on a subsidy program that spans diesel to fertilizers.
Earlier this year, Malaysia raised sugar subsidies to offset higher global prices and keep the cost low for consumers.
In Australia, Swan said subdued consumer spending and non- mining industries that are suffering under the strength of the Australian dollar are restraining tax receipts.
“So despite our strong fundamentals, heightened global turmoil towards the end of last year has had a big impact on government revenues,” he said. “And while the global economy has shown recent signs of stabilization, and the news from the United States has been positive, the threat of financial contagion from Europe’s sovereign-debt crisis does still linger.”
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