SYDNEY (BLOOMBERG) - Australia's government finally took up the central bank's call for economic stimulus in its annual budget, with a A$75 billion (S$77.2 billion) infrastructure plan as its centrepiece.
Road, rail and runway construction will support growth from Western Sydney to Western Australia, Treasurer Scott Morrison announced in Canberra on Tuesday (May 9). His plan promises to create thousands of jobs in an infrastructure-building bonanza as workers transition from recent mining and housing booms.
While the forecast deficit of A$29.4 billion for fiscal year 2018 is slightly wider than economists predicted, the government sought to calm rating agencies by maintaining a return to surplus by 2021. But it's bridging that gap with a heroic assumption: Australians' meagre wage growth rates are seen accelerating to above 3 per cent from under 2 per cent now.
"We are taking practical action to arrest the deficit and the growth in our debt, and doing all we can to preserve our AAA credit rating," the Treasury said on Tuesday. "We choose to focus on growing our economy, in particular by investing in infrastructure, to secure more and better paying jobs."
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At the heart of Australia's challenge is jobless growth: Much of the recent economic expansion has been underpinned by resource exports, immigration and house-price gains. The Reserve Bank of Australia is reticent to use further interest-rate ammunition for fear of fuelling house prices, while successive governments have tried and failed to balance the books.
Mr Morrison has sought to change the terms of the economic debate, from dire warnings on debt and deficit to a more politically astute one of prosperity and jobs. His infrastructure plan aims to create a virtuous circle: Such investment may trigger private sector spending and increased household consumption that would boost the economy.
"It's been a fair while since most hard-working Australians have had a decent pay rise. I know this has put real pressure on Australians," Mr Morrison said in his speech to Parliament on Tuesday evening. "To support growth, we choose to invest in building Australia, rail by rail, runway by runway and road by road."
Projects include a new airport in Western Sydney; acquiring greater or outright ownership of the Snowy Mountains hydroelectric scheme and then expanding it; upgrading highways across the nation; and funding for a Melbourne-to-Brisbane inland railway. Australian voters' initial response to nation building is usually positive, and then turns sour amid cost blowouts for politicised projects.
Whether the budget will save the nation's AAA score "will be a matter for the ratings agencies," Mr Morrison said in a Bloomberg Television interview. "We continue to get very strong support in the debt markets for our sovereign debt."