Australia cuts growth and surplus forecasts

In a midyear economic review, Treasurer Wayne Swan said real GDP growth was forecast at 3 percent this fiscal year — from 3.25 percent predicted in May — while the surplus will shrink to AU$1.1 billion (US$1.13 billion).

“It's pretty obvious to all that ... this mid-year review has been put together amid storm clouds which are hanging over the global economy,” Swan told reporters.

“This lower global growth outlook has had another very big whack at government tax revenues and has made it harder to deliver a surplus.”

Swan said Australia, which avoided recession during the global financial crisis, remained on track to return a modest surplus ahead of all other major advanced economies, thanks in part to more spending cuts.

The center-left Labor government of Prime Minister Julia Gillard has pledged to drag the books back to the black while the mining boom remains in flight, clawing back the AU$43.7 billion deficit from fiscal 2011-12.

Swan announced some AU$16.4 billion in savings over four years would be made to protect the 2012-13 surplus, which is forecast to grow in subsequent years, reaching AU$2.2 billion in fiscal 2013-14.

“This puts us on a responsible middle course between those who say we should cut hard in the budget and don't worry about the impact on growth and jobs, and ... those who say don't cut at all, don't worry about the surplus,” he said.

Decisions taken to balance the books were “difficult but critical at a time of falling revenues and ongoing global headwinds,” Swan added in a statement on the Mid-Year Economic and Fiscal Outlook.

“Global volatility and substantial revenue write-downs have made returning the budget to surplus in 2012-13 much harder but the government remains on track to deliver a surplus,” he said.

Swan said global growth had slowed in recent months, with the recession in the euro area and a subdued recovery in the United States weighing on growth in Australia and the region.

“The weaker global outlook and lower-than-expected commodity prices, along with the general easing of price pressures in the economy, are again slowing the recovery in tax revenue,” he said.

Australia has lost AU$160 billion in tax revenues over the five years since the start of the global financial crisis, and a further write-down in tax receipts of close to AU$22 billion over the next four years would occur.

This will include a AU$4 billion write-down for the financial year ending June 30, 2013, Swan said, with the budget surplus now forecast to be well down on the AU$1.5 billion estimated in the May budget.

Unemployment was forecast to remain at 5.5 percent over the next two years.

But the Treasurer insisted Australia's public finances were in good health, with net debt peaking at 10 percent of GDP in 2011-12 and now falling.

“With Australia's strong set of economic fundamentals, it is hard to find a country that is better placed to deal with uncertain times in the global economy,” he said.

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