Australia aims to nearly halve budget deficit with tax hikes, reduced welfare payments

CANBERRA, Australia – Australia’s government said Tuesday it will nearly halve its fiscal deficit as part of a tough budget that includes tax hikes, less welfare and the layoff of more than 16,000 state employees.

The financial blueprint for the fiscal year starting July 1 is forecast to reduce the budget deficit to 29.8 billion Australia dollars ($27.8 billion) from AU$49.9 billion in the current fiscal year.

Defence spending has been quarantined from the cuts, with specific money allocated for the ongoing search for the missing Malaysian airliner.

Growth in the foreign aid budget will be slowed to save AU$7.9 billion over five years. The Australia Network, a television service broadcast into Asia as a soft diplomacy measure, will be axed to save AU$77 million.

Over five years, the government also plans to spend AU$11.6 billion on infrastructure such as roads, railways and a new Sydney airport to fill the economic void left by the end of Australia’s mine construction boom.

The spending includes AU$5 billion of incentives to encourage state governments to sell assets and invest the proceeds in new infrastructure. The government expects such incentives could help create AU$40 billion in new infrastructure.

The government is also considering selling some of its own assets, including the Australian mint, which produces coins for Australia and some foreign governments.

“The age of entitlement is over,” Treasurer Joe Hockey said in announcing the budget. “It has to be replaced, not with an age of austerity, but with an age of opportunity.”

Prime Minister Tony Abbott’s conservative government was elected in September with a promise of no new taxes. Critics say he is breaking that election pledge with a 2 per cent levy to be paid for three years by Australians earning more than AU$180,000 a year. The levy would raise AU$3.1 billion.

A gasoline tax that was frozen at 38.1 Australian cents (35.7 cents) per litre since 2001 will be indexed to inflation twice a year.

Pension increases will also be linked to inflation instead of faster-growing wages from 2017, saving the government AU$449 million over five years.

Unemployment and family welfare payments will be reduced, companies will lose AU$845 million in industry assistance programs, 70 government agencies will be abolished and 16,500 public servants will lose their jobs over three years.

Unemployment is forecast to increase from 6 per cent to 6.25 per cent and economic growth to slow from 2.75 per cent in the current fiscal year to 2.5 per cent.

Hockey said he would have made more immediate budget cuts, but he did not want to detract from growth which was already slower than the long-term average of 3.25 per cent.

The government will need the support of opposition and minor parties to get some of the more contentious measures through the Senate and might have to make compromises.

The government is continuing with its plans to repeal taxes on mining industry profits and on major industrial polluters for their greenhouse gas emissions, despite the opposition Labor Party and Greens party blocking the moves in the Senate.

In other measures, Australians who pay nothing for their government-subsidized visits to doctors will have to pay AU$7 for each visit.

Most of that money would be used to pay for a new national medical research fund that is forecast to be worth AU$20 billion within six years.

Opposition treasury spokesman Chris Bowen said his party would oppose the new charge for consulting a doctor, the increase in gasoline tax and a government proposal to increase the pension age by five years to 70 by 2035.

“Tonight the Australian people have been hit with a budget of broken promises, cruel cuts and unfair increases in the cost of living,” Bowen said in a statement.

Australia is leading the search for missing Malaysia Airlines Flight 370 which is thought to have disappeared in the Indian Ocean on March 8 with 239 passengers and crew aboard.

The government has budgeted AU$90 million for the search in the current and next fiscal year. But the documents note that the actual cost will depend on a numbers of factors, including the cost of underwater submarines, the length of the search and the contributions of other countries.