Australia set for budget surplus
Australia's government finances remained in good shape and the government would still deliver a budget surplus in 2012/13 despite a high Australian dollar hurting revenue, Finance Minister Penny Wong said on Monday.
Treasurer Wayne Swan will release a mid-year budget review on Tuesday, with reports the statement will contain spending cuts worth up to A$10 billion (NZ$12.864 billion) in order to ensure a surplus in 2012/13.
"The Government's finances are in good shape. The economy is strong. The budget is in good shape. But the soaring Aussie dollar is going to deliver a hit to government revenue and that will be reflected in the MYEFO tomorrow," Wong told reporters. Prime Minister Julia Gillard recommitted herself to the surplus target on Sunday and said the national budget would be "back in the black, back in surplus, in 2012-13 as promised", referring to Australia's fiscal year which ends in June.
In the last week the Australian dollar has strengthened beyond parity with the US dollar, hitting a 28-year-high US$1.0183, its best level since it was floated in 1983.
The government said the high Aussie dollar had hit revenues, as prices for Australian iron ore and coal resource exports were set in US dollars. This means government income in local dollars would fall as international resource prices rose.
In its previous budget update in July, the government forecast a modest A$3.5 billion surplus in 2012/13. The government's previous forecast for 3.0 percent GDP growth in 2010/11 has already been upgraded by the Reserve Bank to 3.5 percent.
The Sydney Morning Herald newspaper on Monday said the mid-year budget update would include spending cuts and spending delays worth up to A$10 billion to help keep the budget on track.
High export prices are lifting Australia's terms of trade by 20 percent rather than the previous forecast 17 percent.
The Australian dollar's recent surge has been driven by a strong economy, strong international demand for resource exports, a surprise interest rate hike by the central bank last week, as well as weakness in the US currency.
Treasurer Wayne Swan has firmly ruled out any direct government intervention to halt its rise, saying the free-market mechanism in place since 1983 has served the country well.