Bloomberg News

Australia Delays Buying F-35 Jets in Push for Surplus

May 02, 2012

Australia’s Defense Force will delay buying 12 new Lockheed Martin Corp. (LMT:US) F-35 Joint Strike Fighters by two years as the Julia Gillard-led Labor government aims to end four years of budget deficits.

The delay will save the government about A$1.6 billion ($1.65 billion) in its 2012-2013 budget, Defense Minister Stephen Smith told reporters in Canberra today. A plan for self- propelled artillery has been scrapped, saving another A$225 million from the budget that will be unveiled May 8, Smith said.

“That is an example of where a move, a delay, a deferral of a capability has a significant budget impact,” Smith said.

Prime Minister Gillard says a return to surplus will give the central bank flexibility to cut interest rates, and is seeking a political dividend from lower borrowing costs in a nation where almost 90 percent of mortgages are variable-rate loans. Support for her government has fallen to a near-record low in opinion polls.

“The government has put itself in the position where it’s put its integrity on the line by promising a budget surplus, so it has to achieve it at any cost,” said John Warhurst, a professor at the Australian National University in Canberra. “Labor is willing to move heaven and earth to show that it’s fiscally responsible.”

Poll Slump

Support for Labor, which faces elections by the end of 2013, slumped to within a percentage point of a record low in an opinion poll published May 1. Labor holds power in the 150-seat lower house with the backing of independent and minor party lawmakers.

Australia’s economy is struggling to accelerate, unexpectedly posting back-to-back trade deficits as coal and metal exports slumped, a government report last month showed. In her bid to get the economy back to surplus, Gillard will cut 40 jobs from her own Department of Prime Minister and Cabinet, the Australian newspaper reported today, citing an e-mail to staff from the department’s secretary, Ian Watt.

“Delivering a surplus in 2012-13 is appropriate for an economy returning to trend growth; it is imperative given global economic challenges,” Treasurer Wayne Swan told reporters in Canberra after the central bank’s rate cut announcement on May 1. “Returning to surplus ensures the government is not generating price pressures in the economy and it does give the Reserve Bank of Australia maximum flexibility to cut interest rates if they think that is appropriate.”

White Paper

The government will begin work on a new defense white paper, Gillard said today. The paper, used to guide policy, will be delivered a year ahead of schedule in the first half of 2013, she said.

“On a five-year timetable, the next paper is not due until this time in 2014,” Gillard said. “However, because of the significant developments internationally and domestically since the 2009 white paper, the government is bringing forward this schedule.”

Likely earlier-than-forecast troop withdrawals from Afghanistan, East Timor and the Solomon Islands were among catalysts for the 2013 white paper, she said.

Australia, a military ally of the U.S., last month allowed the first of 2,500 Marines to arrive in the northern city of Darwin after an agreement between President Barack Obama and Gillard to increase cooperation and allow a greater regional presence for American forces.

The government will provide A$214 million for the next stage of its Future Submarine Project, which will see 12 Future Submarines acquired and assembled in South Australia state over three decades, she said.

In February, U.S. Defense Secretary Leon Panetta proposed delaying the purchase of 179 F-35s beyond 2017 to save $15.1 billion as the Pentagon seeks to cut $487 billion from its budget over the next decade.

To contact the reporter on this story: Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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