As China’s economy slows and Australia begins its painful transition away from a decade-long mining boom, Treasurer Wayne Swan will have little to offer voters seeking an election-year spending spree Tuesday.
The government has spent months priming the public for a significant plunge in revenues -- due to sluggish corporate tax earnings -- when Swan unveils his final budget before Australia goes to the polls on September 14.
The stubbornly high Australian dollar has been fingered as the culprit, squeezing domestic industries at a time when fluctuating commodity prices due to cooling Chinese growth have seen export earnings slide.
Australia, the standout resilient economy during the financial crisis, is showing signs of fatigue. The central bank last Tuesday slashed interest rates to a record low 2.75 per cent to stimulate activity.
The China-driven mining industry, long its major asset and economic engine, is approaching an investment peak and a bumpy transformation lies ahead as triple-A credit-rated Australia seeks alternative sources of growth.
Swan’s economic stewardship through the global downturn earned him Euromoney’s Finance Minister of the Year in 2011, and he boasted that Australia would again beat the world -- this time by returning to surplus this year.
What a difference 12 months can make.
“What has changed has been a fundamental writedown of revenue, which is unprecedented, which couldn’t be forecast or predicted,” Swan told the Nine Network on Sunday as he defended his decision to delay returning to surplus.
Swan said he was ready to “take my medicine” politically for the decision.
“Getting the big economic decisions right to support Australian jobs is what people expect of me, no matter how uncomfortable that is politically,” he said.
Rather than the splurging typical of an election year, Sydney University economist Colm Harmon said the budget was likely to be a “bland affair” aimed at “dampening the sense that somebody’s lost control of the steering wheel”.
“Anything by way of spending would be unbelievable; anything too dramatic in terms of cutbacks will be too damaging,” said Harmon.
If opinion polls are reliable, Prime Minister Julia Gillard’s Labor party is on track to lose power in a landslide to the Tony Abbott-led conservatives come September.
It is a situation that confounds outsiders according to economist Stephen Koukoulas, formerly Gillard’s senior economic adviser.
“Globally people are saying ‘Gosh, what are you guys worrying about? You’re growing, you’ve got minuscule levels of government debt, you’re in the fastest-growing region in the world,” Koukoulas told AFP.
“‘You’ve got 5.5 per cent unemployment, you’ve got government debt that’s 10 per cent of GDP, your deficit’s one per cent of GDP. What on earth is bugging you guys?’”
According to Harmon, who arrived in Australia from austerity-hit Ireland just nine months ago, the government made a rod for its own back by repeatedly “fetishising” the political imperative of a budget surplus.
To justify reneging on that promise Harmon said Labor had been forced to resort to “the language of ‘let’s share the pain’” -- the last thing voters want to hear in an election year, and rhetoric that jars with reality.
“Australia is a million miles away from any of the catastrophic scenarios that other countries find themselves in,” said Harmon.
“While there are plenty of bumps in the road potentially -- Chinese demand, housing market issues -- the country has more than the ability to absorb that.
“The economic realities are very sound indeed. Unfortunately the political issue (of a deficit) is resonating with the public.”
Nick Economou, politics analyst from Monash University, said voters had largely stopped listening and had only “a sort of macabre interest to see how the condemned are going to behave as they go to their execution” on budget night.
“The voters have made up their minds and it’s all over,” said Economou.
“In politics people are never satisfied, it doesn’t matter what you do. And the worst thing you can say to them is ‘You’ve never had it so good’.”