Australia government delivers tax cuts, surplus in pre-election Budget

Australian treasurer Josh Frydenberg (left) poses for a photograph with Minister for Finance Mathias Cormann with the 2019 Budget papers ahead of Budget 2019 at Parliament House in Canberra. PHOTO: REUTERS

CANBERRA (REUTERS) - Australia's conservative government on Tuesday (April 2) proposed tax cuts for low- and middle-income earners and record spending on health and education while delivering the first budget surplus in more than a decade, setting up its campaign for an imminent election.

Treasurer Josh Frydenberg offered A$158 billion (S$150 billion) in tax cuts over the next decade primarily aimed at middle-income earners, on top of tax cuts of A$144 billion last year, as the coalition government, which is trailing in opinion polls, tries to win over voters.

An election must be held by mid-May and could be called as soon as this week.

"We will ask the Australian people, 'Who do you trust to deliver lower taxes?'" Mr Frydenberg told a media conference.

"The coalition has the track record of delivering," he added.

Mr Frydenberg predicted a budget surplus of A$7.1 billion in the fiscal year ending June 2020, up from a December forecast of a A$4.1 billion surplus, as higher export receipts and tax revenues boost government coffers.

If achieved, it would be the first surplus since 2007/08, before the global financial crisis hit.

The projected surpluses increase to A$11 billion in 2020/21 and A$17.8 billion in 2021/22 before easing to A$9.2 billion in 2022/23.

Offering potential swing voters an immediate dividend, the government said it will double the tax rebate for people earning between A$48,000 and A$90,000 a year to A$1,080 in the current fiscal year.

Budget papers showed the cost of the tax cuts out to 2021/22 would be A$15 billion.

Mr Frydenberg also proposed changes in future years that would see income bands widened and tax rates reduced to deliver personal tax cuts.

The government would accelerate tax cuts for small businesses, it said, with the tax rate for businesses with turnover of less than A$50 million cut to 25 per cent in 2021/22.

The strong inflows into government coffers meant that Mr Frydenberg could increase spending on healthcare, a strength of the opposition Labor party, to a record A$89.5 billion in 2022/23.

That is up nearly 10 per cent on expected spending in 2019/20.

The government would spend A$100 billion on infrastructure over the next decade to reduce congestion and improve links between Australia's cities and regional towns, a lot of which has already been announced.

Spending on rural infrastructure was forecast to rise by nearly 30 per cent, with A$4.5 billion to be spent on building roads in country areas, the major support base of the ruling coalition's junior partner.

The government also included an immediate one-off rebate on energy costs to pensioners, another key voter demographic for the coalition, of A$75 for an individual or A$125 for couples.

And Mr Frydenberg announced a A$3.5 billion package to reduce emissions to meet Australia's commitments under the Paris Accord. The government's environmental record is seen as one of its electoral weaknesses with urban voters.

Mr Frydenberg maintained a relatively optimistic outlook for the economy, though he conceded there were risks including from falling house prices and global risks such as Brexit.

The government forecast full-year economic growth of 2.25 per cent in 2018/19, which would need activity to pick up in the January-to-June period as the economy grew 0.3 per cent in the September quarter and 0.2 per cent in the December quarter.

Growth in the A$1.9 trillion economy is seen picking up to 2.75 per cent in 2019/20 and 2020/21.

The tax cuts and increased spending, if enacted, could offer a boost to the economy, as consumer spending has been soft recently as falling home prices and high debt levels weigh on sentiment. Financial markets are fully pricing in a 25 basis points rate cut later this year.

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