Australia releases economic plan to return budget to surplus in 3 years and repay debt early

Australia plans next budget surplus in 3 years

CANBERRA, Australia — Australia plans to sidestep the developed world’s deepening quagmire of sovereign debt by returning its budget to surplus in three years, the government announced on Tuesday in an economic blueprint aimed at securing votes at a looming election.

The budget for the fiscal year beginning July 1 is the Labor Party government’s third and last before Prime Minister Kevin Rudd seeks a second three-year term in power with elections due late this year.

The budget’s chief architect, Treasurer Wayne Swan, said the budget would return to a slim 1 billion Australian dollar ($901 million) surplus in the 2012-13 fiscal year — three years earlier than the government forecast a year ago.

Net debt would be totally repaid in 2018-19 — also three years ahead of schedule — after peaking at AU$91 billion, or 6.1 percent of gross domestic product, in 2011-12.

Billions of dollars of stimulus spending helped Australia avoid recession during the global financial crisis but also forced the government to borrow to finance the budget shortfall. Even so, Australia’s debt remains extremely low by the standards of other developed economies.

Swan told Parliament the balanced budget would be achieved “ahead of any of the major advanced economies.”

The strategy blunts the opposition Liberal Party’s portrayal of the government as reckless spenders who were burdening future generations with mounting debt.

But the new blueprint for Australia’s AU$1.2 trillion economy hinges on government plans announced earlier this month to cash in on booming profits in the mining industry.

A 40 percent so-called Resource Super Profits Tax would be introduced in July 2012 and raise an anticipated AU$9 billion in additional revenue a year from big mining companies that have benefited from Chinese and Indian industrial demand for minerals and energy.

The government plans to use this extra money to offset revenue lost from cutting company tax from 30 to 28 percent by July 2014, which in turn would help businesses make bigger contributions to their employees’ pension funds.

But the Liberals have already said they won’t support the new mining tax in the Senate — where Labor holds a minority of seats and needs opposition support to pass laws — because it would drive mining investment overseas.

A leading business group, Australian Chamber of Commerce and Industry, welcomed the planned early return to surplus while opposition treasury spokesman Joe Hockey said the three-year target would not be reached because it was based on optimistic forecasts of future mining investment and exports.

The strength of the mining sector helped Australia scrape through the global economic crisis with only a single quarter of economic contraction and had helped Australia maintain surpluses since 2002-03 until the global downturn hit the 2008-09 budget.

The budget documents predict the Australian economy will grow by 2 percent in the current fiscal year, then accelerate to 3.25 percent in 2010-11 and 4 percent in the following year.

Australia’s jobless rate had peaked at 5.8 percent in mid 2009 and would reach a near full employment level of 4.75 percent in 2011-12.

The budget documents say Canada and Germany were best placed among the major advanced economies to return to surpluses, but none was expected to do so before 2015.

Rudd’s Labor has been riding high in opinion polls since its election in 2007. But recent polls show the conservative opposition has made up ground since Rudd shelved plans to curb Australia’s greenhouse gas emissions by making major polluters pay for the amount of carbon dioxide that they produce.

The budget includes AU$652 million over four years to encourage private investment in renewable energy projects such as solar and wind. The investment will help Australia meet its target of having 20 percent of the country’s power coming from renewable sources by 2020.

The budget also injects AU$2.2 billion into the national health system over four years in an initiative aimed at bolstering Labor’s reputation as being a better manager of public hospitals than the conservatives.

Swan said billions of dollars in government stimulus spending had kept the economy out of recession. But the voters would judge this year at elections at a date to be announced whether the government were the best economic managers.