Australian Treasurer strikes sour note on government budget

Australian Treasurer Wayne Swan yesterday warned of a "dramatic" hit to the government's bottom line due to falls in commodity prices, steeling voters for an austere budget in an election year.

Swan said government revenues had taken a "massive hit" from a plunge in its terms of trade - the value of exports measured against imports - with prices for its key mining products down but the Australian dollar remaining high.

"This has contributed to subdued price pressures and weaker profitability across the economy, which means that nominal GDP has grown more slowly than real GDP for three straight quarters," said Swan in his weekly economic note. "This run is unprecedented since records began."

Swan said revenues were A$6 billion (HK$48.46 billion) lower than forecast for the first seven months of the fiscal year to June "primarily due to the impact of lower corporate profits".

He is due to hand down the budget in May.

"While revenue has taken a big hit, the monthly financial statements also show that government expenditure is running slightly below our forecasts," Swan said. "This further highlights that the dramatic hit to the budget bottom line is being driven entirely by lower-than-expected revenues, while the government continues to exercise spending restraint."