Savage cuts returns Australia to surplus

REUTERS

Australian Treasurer Wayne Swan delivers the 2012 Federal Budget in Parliament House, Canberra, May 8, 2012. Swan said the budget would deliver a small A$1.5 billion ($1.53 billion) surplus in the year to June 30, 2013, thanks largely to cuts in spending on defence and foreign aid and abandoning planned tax cuts for companies and savers.

Australian Treasurer Wayne Swan declared the “deficit years of the global recession” over Tuesday, unveiling a Aus$1.5 billion budget surplus funded by deep cuts to defence and foreign aid spending.

Swan vowed an ambitious Aus$33.6 billion in savings, slashing Aus$5.5 billion from military spending and trimming Australia's overseas aid by Aus$2.9 billion, along with a raft of other reforms to tax and welfare benefits.

The measures will only deliver a modest Aus$1.5 billion (US$1.52 billion) surplus for the 2012-13 fiscal year starting July 1, but the Labor government has been determined to return the budget to black in a bid to salvage its popularity.

“Tonight we make a forceful statement that ours is one of the world's strongest economies,” Swan told lawmakers in his budget speech.

“The deficit years of the global recession are behind us. The surplus years are here.”

The budget forecasts a surplus of Aus$7.5 billion by 2015-16, a dramatic reversal of the present Aus$44 billion deficit requiring some of the deepest cuts to government spending seen in Australia for decades.

Defence was the major target, with Aus$5.5 billion in spending cut over the next four years, including the deferral of 12 F-35

Joint Strike Fighter aircraft, scrapping some artillery purchases and sacking 1,000 civilian staff.

The government vowed there would be “no adverse impact on operations in Afghanistan” or East Timor and the Solomon Islands, where Australian troops are stationed in a peacekeeping capacity.

Overseas aid was also sacrificed, with Aus$2.9 billion in savings through the scaling back of development targets which Foreign Minister Bob Carr said would see funding “grow at a slightly slower rate” than forecast.

Australia was the only advanced nation to dodge recession during the global downturn due to the resilience of its mining exports to Asia, and it again leads the major economies by becoming the first to record a budget excess.

Swan said the surplus was a key buffer against renewed turmoil in Europe, where French president Nicolas Sarkozy and the Greek government were unseated at weekend elections, threatening eurozone austerity plans.

“In these uncertain times there's an absolute premium on clear and credible fiscal policy and that's why the government has charted this course,” he told reporters, adding that the “conditions demand a surplus”.

“Every area of government spending has, in one way or another, been reined in in this budget.”

Swan said Europe continued to cast a pall over the global economy, but he expected the Asian region to remain prosperous and buoy Australia, with some Aus$450 billion in mining sector investment slated for coming years.

Australia is forecast to grow by 3.25 percent in 2012-13 and 3.0 percent in each of the three following years.

Unemployment, which is currently at 5.2 percent, was put at 5.5 percent in 2012-13 and 2013-14 before dropping off to 5.0 percent, with inflation of 3.25 percent flagged for 2012-13 and 2.5 percent for the following three years.

All the figures are unchanged from Canberra's last budget outlook, issued in November.

Already struggling in the polls and with a fragile hold on power, the ruling Labor party has been rocked by a series of scandals in recent weeks and is hoping the budget will provide a much-needed boost to its popularity.

Swan denied that the return to surplus was a populist political move.

“We've come back to surplus because we think it's good fiscal policy,” he said. - Sapa-AFP