(Recasts after release of budget, adds comments from S&P)
By Wayne Cole
SYDNEY, May 9 (Reuters) - Australia's Labor government
boasted the first budget surplus in 15 years on Tuesday, as
strong jobs growth and bumper mining profits swelled its
coffers, but it will quickly be swallowed up by spending on
everything from health to energy and defence.
In his second budget since winning power in May last year,
Treasurer Jim Chalmers also announced billions in cost-of-living
relief aimed at lowering power bills and consumer prices in a
helping hand to the Reserve Bank of Australia's (RBA) fight
against inflation.
"Providing responsible, targeted relief is the number
one priority in our Budget," Chalmers told lawmakers, while also
lauding the improvement in the budget bottom line.
"This Budget, we've returned 82% of the extra revenue
windfall that's largely come from lower unemployment, stronger
jobs and wages growth, and higher prices for key exports."
The highlight was a projected A$4.2 billion ($2.85
billion)surplus for the year to June 2023, the first since
2007/08 and a huge turnaround from the A$37 billion shortfall
forecast last October.
The former Liberal National government came
tantalisingly close to a surplus in 2019, only for COVID-19 to
blow a pandemic-sized hole in the accounts and lift the deficit
to a record A$134 billion.
The latest improvement owes much to a surprisingly
strong labour market, which has taken unemployment to near
50-year lows of 3.5% and boosted income tax while curbing
welfare payments.
High prices for Australia's commodity exports have also
delivered a windfall to mining profits, and thus tax receipts,
though prices are now well off their peaks.
The government also raised its long-term commodity price
assumptions in the budget, which is expected to contribute
billions of dollars in extra revenues.
"The government's commitment to fiscal discipline, such
as saving revenue upsides, remains critical to our 'AAA' rating
on Australia as long-term challenges linger," said Anthony
Walker, a director at S&P Global Ratings.
Walker believed the revised commodity price projections were
still conservative.
"A sharp slowdown in economic activity that weakens the
general government budget, causing debt and servicing costs to
rise, could pressure the 'AAA' rating," he added.
SPENDING PRESSURES
Chalmers also expects the domestic economy to brake to
just 1.25% in 2023/24 from 3.25% this fiscal year, in large part
due to a painful 375-basis-points of rate rises from the RBA.
That tightening should have the desired impact on
inflation, which Chalmers sees slowing to 3.25% by mid-2024,
down from the current blistering 7.0% pace. Treasury estimates
its relief package for energy bills alone will cut 0.75
percentage points from consumer price inflation in 2023/24.
Higher interest rates, however, have sharply raised the
cost of funding the government's near A$1 trillion in debt, with
debt repayments the fastest growing cost in the accounts.
The government also announced reforms to its immigration
system to fill critical labour shortages, projecting that net
overseas migration will reach 400,000 arrivals for the current
fiscal year and 315,000 next year.
There are plenty of other demands on the public purse.
Annual spending on hospitals and aged care is seen rising by 6%
or more every year for the next decade, while interest payments
are up almost 9% and disability payments 10%.
Australia will invest A$2 billion to scale up development of
its renewable hydrogen industry, while defence is set for the
biggest increase since World War Two amid plans to spend A$368
billion out to the 2050's on nuclear powered submarines from the
UK and United States.
All of which means the budget will soon be back in the
red, with Chalmers forecasting deficits of A$14 billion in
2023/24 and A$35 billion the year after. As surpluses go, this
is very much a one-off.
($1 = 1.4743 Australian dollars)
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(Reporting by Wayne Cole and Stella Qiu; Editing by Sam Holmes,
Shri Navaratnam and Jacqueline Wong)
