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25 April 2024

Economic crunch will force Australia budget into deficit

Wayne Swan (SUPPLIED)


Plunging demand for mining resources amid the global economic crisis will force Australia's once-robust budget surplus into deficit, Treasurer Wayne Swan said.

"Company taxation could be down as much as $50 billion (Dh183bn) over four years as a consequence of the global recession," Wayne Swan said.

"Of course what that means is – because of the unwinding of China, the global recession – it will be inevitable Australia has a temporary budget deficit," he quoted as telling Channel Nine television.

Demand in China and other Asian countries for Australian resources such as coal and iron ore has driven the economy for years, but exports have been hit hard by fading growth in major trading partners.

The surplus of A$21.7 billion (Dh50.6bn) forecast in May's budget was slashed in November by three-quarters to A$5.4bn as the government warned the crisis would cut tax receipts, growth and jobs.

But the acknowledgement even that will disappear follows Prime Minister Kevin Rudd's announcement on Saturday the International Monetary Fund (IMF) had predicted the country could go into recession this year.

The Australian government is widely expected to announce further measures to stimulate the economy after a A$10.4bn pump-priming exercise in December aimed at getting consumers to spend.

Swan would not be drawn on speculation the measures will include tax cuts.

"What we are doing right now is looking at all options, given the substantial deterioration that has occurred… and the grim outlook that now comes out of bodies like the IMF," he said.

Incentives for business investment were always important but "the most important thing for the government to do to stimulate the economy is to stimulate demand so that business actually has some customers", Swan said.

The central bank is also expected to act to stimulate the economy by announcing a further cut in interest rates after its monthly board meeting tomorrow.

Economists are predicting a reduction of as much as 100 basis points, to 3.25 per cent.