Australia’s centre-right coalition government on Tuesday night unveiled larger than expected tax cuts in a bid to head off the slowdown in an economy that is set to record its lowest rate of growth for more than a decade this year.
In its first budget since winning re-election in October, the government took advantage of a budget surplus, boosted by higher than forecast corporate tax revenues, to promise A$21.7bn ($16.8bn) in personal income tax cuts over four years.
It will also abolish a pension contribution surcharge tax for high earners rather than phase it out. But, acknowledging a run of weak economic data, the Treasury again cut its forecast for growth for the year to end-June, to 2 per cent, down from 3 per cent just six months ago.
It predicted a rebound to 3 per cent in 2005-06 but growth at this rate would be well below the 4 per cent or more that the economy averaged in the 1990s.
While some economists fear the boost provided by the tax cuts will encourage further interest rate rises, others said the measures were appropriate. “I don't think this is unwanted stimulus, you still have a reasonable [budget] surplus there,” said Stephen Walters, chief economist at JPMorgan in Sydney.
But business, while welcoming measures such as a A$3.6bn welfare-to-work programme to increase workforce participation at a time of unusually low unemployment, was disappointed it did not receive more tax cuts.
Corporate taxes are set to fall by just A$1.8bn, mainly through the abolition of a tariff on imported business inputs.
“There is a lot in this budget that deserves a tick but it is also a budget of missed opportunities,” said Peter Hendy of the Australian Chamber of Commerce and Industry.
