Australian Economy

Gillard links budget surplus pledge to trend economic growth

PUBLISHED : Friday, 07 December, 2012, 10:54am
UPDATED : Friday, 07 December, 2012, 11:02am

Prime Minister Julia Gillard signaled a 2013 budget surplus goal relies on the economy expanding at trend, as weaker growth threatens to curb revenue and derail her election-year commitment.

“Our last economic update had us at trend growth and that is why the last economic update had us with a surplus,” Gillard said in an interview with Australian Broadcasting Corp. radio on Friday. “We are still determined to deliver the surplus.”

Gillard’s government is bidding for a A$44 billion (US$46 billion) swing in the budget back to the black in time for an election due late next year. Ministers are preparing to dump the surplus pledge if growth slips below trend -- a long-term average of just above 3 per cent -- in the December quarter, the Australian Financial Review reported on Friday without identifying the source of the information.

Australia’s first female prime minister, whose Labor party has closed the gap with the opposition coalition in opinion polls, has staked her economic credibility on delivering the first surplus since the 2009 global recession. Threatening that commitment is a weaker international outlook, lower prices for commodity exporters and a high local dollar that’s hurting non- resource industries such as tourism and manufacturing.

“Gillard has placed herself in a corner by promising a surplus in a bid to counter the opposition’s claims that she can’t manage the economy,” said Zareh Ghazarian, a lecturer at the School of Political and Social Inquiry at Melbourne’s Monash University. “With factors overseas reducing government revenue, she can make the case to voters that it’s better to back away from that commitment to promote growth.”

  Third-quarter gross domestic product advanced 3.1 per cent from a year earlier, slowing from 3.8 per cent year-on-year gain in the prior quarter. Growth was 0.5 per cent from the previous three months, the weakest quarterly gain since January-March 2011.

The report covered a period when companies scaled back mining projects in response to lower commodity prices. Reserve Bank of Australia Governor Glenn Stevens reduced rates four times this year to help support consumption and the nation’s housing market.

“We have got a resilient economy,” Gillard told the ABC. “Even with these pressures, commodity prices coming off, the high Aussie dollar, our economy’s fundamentals are still strong.”

The Financial Review cited unidentified officials who pointed to several statements from government ministers linking the budget surplus commitment to economic growth.

The Paris-based Organization for Economic Cooperation and Development last month predicted Australia’s economy will grow 3 per cent next year, compared with 3.7 per cent this year.