Australia’s centre-right government pledged billions in fuel tax cuts, cash giveaways and public works spending on Tuesday as it looks to claw back voter support ahead of what is tipped to be a tough election in May amid a surge in living costs.
Prime Minister Scott Morrison is trailing the Labor opposition in opinion polls and is focusing his campaign on economic management, relief for households and national security as the war in Ukraine and tensions with China raise geopolitical concerns.
In his budget address on Tuesday, Treasurer Josh Frydenberg talked up Australia’s rapid fiscal improvement as the economy emerged from a pandemic-induced downturn but promised support for families struggling with rising consumer prices.
“We live in uncertain times. The last two years have been tough for our country, there have been setbacks along the way,” Frydenberg said in a speech to politicians.
Headlining Frydenberg’s budget was a halving in the national fuel levy over the next six months, a A$250 ($187) one-off payment to six million people on income support, and extra tax offsets for 10 million low and middle-income earners.
“In this budget, we’re delivering temporary, targeted and responsible cost-of-living relief for Australians now,” Frydenberg told reporters ahead of the budget’s release.
The government is forecasting a budget deficit of A$79.8bn ($60bn) for the fiscal year ending June 2022, at the upper end of analyst expectations but significantly below the A$99.2 billion projected at the December budget update.
In the coming 2022/23 fiscal year, the deficit is forecast to hold almost steady at A$78 billion, before narrowing in following years.
The fiscal improvement reflects both a strong labour market, boosting taxes and cutting welfare, and bumper receipts as the Ukraine war and continuing global supply bottlenecks drive a price surge in some of Australia’s key exports, such as coal, wheat and iron ore.
Morrison’s Liberal-National government was forced to inject billions in stimulus in 2020 to shore up an economy upended by the coronavirus pandemic, abandoning decades of his party’s fiscally conservative ideology as public finances slumped deep into the red.
Looking ahead, deficits are expected to persist but then narrow, accounting for 1.6 percent of gross domestic product (GDP) by the 2026 fiscal year from 3.5 percent in the current fiscal year.
Australia has gradually reopened its borders to international visitors, ending two years of a crippling travel ban that starved the economy of tourists, foreign students and imported labour.
Net migration is expected to return to 41,000 arrivals in the current fiscal year from 89,900 net departures in the previous. Arrivals are then projected to head back to pre-pandemic levels of 180,000 and 213,000 in the 2022/23 and 2023/24 fiscal years, respectively.
That, combined with a wider reopening of the global economy as pandemic curbs ease, has prompted the government to upgrade its expectations for GDP and the labour market, with the unemployment rate seen dipping to a 50-year low of 3.75 percent by September.
Data out earlier on Tuesday showed retail sales jumped a solid 1.8 percent in February, while spending on bank cards has held up well in March.
Those brisk conditions are expected to add to price pressures, with the government forecasting annual consumer inflation would hit 4.25 percent in the current fiscal year, well up on the 2.75 percent flagged in December, before moderating in the years ahead.
Such inflation would add to the case for the central bank to hike interest rates from record lows later this year, the first tightening since 2010.