Australia's government delivered a promised surplus budget today, scrapping planned tax breaks but offering more cash to its traditional supporters to deflect attention from scandals that threaten prime minister Julia Gillard's grip on power.
The government hopes the modest surplus, which some economists considered inappropriate while the central bank is cutting interest rates, will bolster its economic policy credentials and keep Australia's AAA credit rating safe.
Treasurer Wayne Swan said the budget would deliver a A$1.5 billion (€1.17 billion) surplus in the year to June 30th, 2013, largely from cuts in spending on defence and foreign aid and abandoning planned tax cuts for companies and savers.
Small surpluses were also forecast for the following three years. "The deficit years of the global recession are behind us. The surplus years are here," Mr Swan said in a budget speech to parliament.
A voter backlash against austerity measures in Europe saw voters in Greece and France abandon ruling parties at the weekend, but Ms Gillard's unpopular government sought to avoid anger among its Labour Party heartland by announcing a raft of new cash payments to low-income households and those on welfare.
Despite economists' doubts, Mr Swan said the fiscal tightening would protect Australia against global turbulence and give the central bank room for further rate cuts.
"A surplus provides our best defence against dramatic changes in the global economy. A moderate recovery in the US still has a long and difficult road ahead, and Europe continues to cast a shadow over the global outlook," Mr Swan said.
Australia's economy has weathered the global downturn better than most other developed nations, as strong demand from China powered booming demand for iron ore, coal and other raw materials.
Australia's dollar and 10-year bond yield shrugged off the budget, with markets more concerned about developments in Europe's sovereign debt crisis.
Australia is one of only eight countries with a stable top-notch AAA rating from three major ratings agencies, and Moody's Investors Service said after the budget's release that it would have no impact on the rating.
Mr Swan said business would invest a record A$120 billion in resource projects in 2012-13 and Australia's net debt would peak at 9.6 per cent of gross domestic product this financial year, well below levels around 70 per cent in the euro area and over 70 per cent in the United States and Britain.
Agencies
