Bloomberg News

Gillard Links Budget Surplus Pledge to Trend Economic Growth

December 06, 2012

Prime Minister Julia Gillard signaled a 2013 budget surplus goal relies on the economy expanding at trend, as weaker growth threatens to curb revenue and derail her election-year commitment.

“Our last economic update had us at trend growth and that is why the last economic update had us with a surplus,” Gillard said in an interview with Australian Broadcasting Corp. radio today. “We are still determined to deliver the surplus.”

Gillard’s government is bidding for a A$44 billion ($46 billion) swing in the budget back to the black in time for an election due late next year. Ministers are preparing to dump the surplus pledge if growth slips below trend -- a long-term average of just above 3 percent -- in the December quarter, the Australian Financial Review reported today without identifying the source of the information.

Australia’s first female prime minister, whose Labor party has closed the gap with the opposition coalition in opinion polls, has staked her economic credibility on delivering the first surplus since the 2009 global recession. Threatening that commitment is a weaker international outlook, lower prices for commodity exporters and a high local dollar that’s hurting non- resource industries such as tourism and manufacturing.

“Gillard has placed herself in a corner by promising a surplus in a bid to counter the opposition’s claims that she can’t manage the economy,” said Zareh Ghazarian, a lecturer at the School of Political and Social Inquiry at Melbourne’s Monash University. “With factors overseas reducing government revenue, she can make the case to voters that it’s better to back away from that commitment to promote growth.”

Weakest Gain

Third-quarter gross domestic product advanced 3.1 percent from a year earlier, slowing from 3.8 percent year-on-year gain in the prior quarter, a Bureau of Statistics report released Dec. 5 showed. Growth was 0.5 percent from the previous three months, the weakest quarterly gain since January-March 2011, the data showed.

The report covered a period when companies including BHP Billiton Ltd. (BHP) scaled back mining projects in response to lower commodity prices. Reserve Bank of Australia Governor Glenn Stevens reduced rates four times this year to help support consumption and the nation’s housing market.

‘Resilient Economy’

“We have got a resilient economy,” Gillard told the ABC. “Even with these pressures, commodity prices coming off, the high Aussie dollar, our economy’s fundamentals are still strong.”

The Financial Review cited unidentified officials who pointed to several statements from government ministers linking the budget surplus commitment to economic growth.

The Paris-based Organization for Economic Cooperation and Development last month predicted Australia’s economy will grow 3 percent next year, compared with 3.7 percent this year.

Labor’s primary vote remained on 36 percent with Tony Abbott’s Liberal-National coalition staying on 43 percent, according to a Newspoll survey published in the Australian newspaper on Nov. 26. Taking preference votes into account, Labor had 49 percent support and the opposition had 51 percent on a two-party preferred basis, unchanged from a poll two weeks earlier.

The telephone survey of 1,156 people, conducted Nov. 23-25, had a margin of error of plus or minus 3 percentage points.

To contact the reporters on this story: Michael Heath in Sydney at mheath1@bloomberg.net; Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editor responsible for this story: Edward Johnson at ejohnson28@bloomberg.net


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