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The Australian government on Thursday wiped A$7.4bn ($5.5bn, €4.6bn, £3.1bn) off the value of its stake in Telstra, the telecommunications company set for full privatisation, using its mid-year budget update to slash the assumed sell-off price by 21 per cent.
Peter Costello, treasurer, said the government would now assume a sale price of A$4.13 a share, and not A$5.25 as signalled in previous budgetary forecasts, in recognition of Telstra’s prolonged share price slump. It has dropped 26 per cent over the past five months to around A$3.80 following two sharp profits warnings.
The revised forecast means that the government expects proceeds from next year’s planned sale of its remaining 51.8 per cent holding to be A$26.4bn, and not A$33.8bn as previously assumed.
However, economists said the Telstra revision would not have an impact on government finances, which continued to benefit from the global resources boom.
Unveiling his mid-year budget update, Mr Costello raised the government’s forecast budget surplus for the year ending June 30 2006 to A$11.5bn, up from the A$8.9bn estimated in his May budget. He also raised the following’s year’s forecast surplus by 20 per cent to A$9.7bn.
The surplus is a result of surging corporate tax receipts, fuelled mainly by Australian resources companies selling commodities at record prices to China and Japan. Mr Costello said: “I believe that the rise of China will go on for some time.” Strong employment figures have also lifted personal income tax receipts.
Economic growth remains on track to hit 3 per cent this year and the year after. However, higher petrol prices are expected to push inflation this year to 3 per cent – the top end of the Reserve Bank’s range and higher than the 2.75 per cent forecast in the May budget.
Economists were disappointed by the revised figures for export growth and the current account. The forecast for exports was adjusted from a 7 per cent rise this year to 4 per cent, largely because of the effects from last year’s disappointing winter crop. The current account deficit is forecast to widen to A$51.5bn, or 5.5 per cent of GDP.
The government said that sustained higher oil prices represented the biggest risk to inflation, but it acknowledged that slower consumer spending would also inhibit economic growth.
Economists said that, while the government’s outlook for economic growth was unchanged, business investment appeared likely to overtake consumption and exports as the main growth driver.
John Edwards, HSBC Australia chief economist, said: “The mid-year forecasts are in line with market expectations, with the main concern being slowing export growth further affecting the current account deficit.”
Richard Gibbs, head of economics at Macquarie Bank in Sydney, said: “It looks like exports will still drag on growth. The swelling in the budget surplus will fuel demands for corporate and personal tax cuts.”