Aussie’s windfall surplus buys Morrison election ammunition

CANBERRA • Prime Minister (PM) Scott Morrison’s government pledged sweeping tax cuts and forecast Australia’s first surplus in more than a decade in a budget aimed at engineering a come-from-behind election victory.

The Treasury projected a A$7.1 billion (RM20.59 billion) surplus for the fiscal year through 2020, or A$3 billion more than a December estimate, thanks to surging commodity prices and a hiring bonanza. That’s handed Morrison ample ammunition to promise tax relief to about 10 million voters ahead of an expected May election.

“The budget is back in black and Australia is back on track,” Treasurer Josh Frydenberg told Parliament as he handed down the annual budget in Canberra yesterday evening.

The triumphant tone may prove short-lived with opinion polls showing voters are set to oust the Liberal-National coalition, handing the main Opposition Labor party power and an economy that’s starting to falter. Earlier yesterday, the central bank kept interest rates on hold and noted weakness in consumption due to stagnant incomes and falling home prices.

While the government forecast surpluses through at least 2023, it relies on some rosy economic projections. Stagnant wage growth is predicted to leap more than a percentage point after hardly budging for the past five years. The government’s also banking on continued solid jobs growth and consumption holding up.

The Australian dollar was little changed after the budget’s release, trading at 70.74 US cents (RM2.90) at 7:38pm in Sydney yesterday.

Much of that optimism jars with recent developments. Australia’s economic growth has sharply slowed, with household spending looking fragile amid the worst property slump in a generation. That’s alongside a slowing global economy and ongoing trade disputes between the US and China.

“Growth in household consumption is being affected by the protracted period of weakness in real household disposable income and the adjustment in housing markets,” Reserve Bank of Australia governor Philip Lowe said hours before the budget’s release, when he held the cash rate at a record-low 1.5%.

Morrison’s budget, his first since winning the leadership in August after three years as treasurer, is aimed squarely at voters’ hip pockets.

Key Budget Policies

• Tax cuts of up to A$1,080 a year for about 10 million low- and middle- income earners.

• Reducing the tax rate for small businesses by 2.5 percentage points to 25% by fiscal 2022.

• One-time payments to more than 3.9 million Australians of A$75 for singles and A$125 for couples to help pay their energy bills.

• Bolstering planned spending on roads, railways and airports to A$100 billion over a decade.

The estimated A$158 billion in promised tax cuts over a decade comes on top of A$144 billion of relief that was passed last year.

The government won’t seek to legislate the tax cuts in coming days — the final sitting week of Parliament before elections are expected to be called.

Returning to the black is important for the Liberal-National coalition as it reinforces its reputation for sound economic management. The coalition regularly recorded surpluses under former PM John Howard, before the budget fell into persistent deficits under Labor following the global financial crisis. Running a surplus is particularly important for Australia internationally, as it consistently operates a current-account deficit.

The government also promised to eliminate net debt by 2030, which is expected to peak at 19.2% of GDP in the current fiscal year.

“Only one side of politics can do this, because only one side of politics has done this,” Frydenberg said.

With polls pointing to a comfortable election victory for Labor, attention is already focusing on the alternative budget to be delivered by Opposition leader Bill Shorten tomorrow night. — Bloomberg