Australians divided on tough budget medicine

Staff Writer
Columbus CEO

CANBERRA, Australia (AP) — Australia's robust economy, triple-A credit rating and low debt has been the envy of other developed nations that have struggled to recover since the global recession. So when the government earlier this week announced a debt crisis requiring drastic spending cuts, Australians could be forgiven a certain amount of disbelief.

The government's austerity budget was so contentious it has raised the possibility of fresh elections because Prime Minister Tony Abbott's conservative coalition faces stiff resistance in the Senate to its harshest measures.

Abbott blamed out of control debt on Tuesday when his government announced plans to slash welfare, cut public service jobs and raise taxes to reduce a deficit forecast to reach 49.9 billion Australian dollars ($46.7 billion) in the current fiscal year ending June 30.

While the budget gap is the ugliest in recent memory for Australia, the government's debt is a mere 20.5 percent of gross domestic product, far less than the U.S. at more than 100 percent of GDP and Japan, where public debt is approaching 250 percent of the economy. Australia is one of only eight countries that have a triple-A credit rating with a stable outlook from all three major rating agencies.

Those credentials make it difficult to convince Australians there is a crisis, but the government insists that without big changes the country is on a slippery slope to financial oblivion.

"Using some language like the government has been using might serve a purpose in focusing minds on rebalancing of the budget, but in reality, there's no crisis to see, no emergency to see," Australian National University economist Paul Burke said Friday.

Australia does face some challenges in balancing the books. The mining boom that buoyed Australia's economy for the past decade and paid for a series of personal income tax cuts has fizzled in the past two years, wiping billions of dollars from the government's tax revenue. The government had reduced net debt to zero before the 2008 financial crisis. Since then, it has taken just a few years for debt to reach its current 20 percent of GDP level.

The government's measures will fix the "debt and deficit disaster" created by the previous Labor Party-led government, Abbott told reporters Friday.

Those plans include cutting more than 16,000 government workers and freezing welfare payments for two years, and then indexing them to rise with inflation instead of the faster-growing measure of average male earnings

The government also plans to strip AU$80 billion from hospitals and schools over a decade, shifting the costs to the states to pick up and raising the prospect of an increase in Australia's 10 percent consumption tax. Australians on high salaries will face a temporary extra tax on their incomes.

The austerity is projected to reduce the deficit to AU$29.8 billion next year and AU$2.8 billion in 2017-18. It would be in surplus from 2018-19.

The government says it would have been tougher but slowing economic growth meant it had to temper its cuts.

Abbott's government needs the support of Labor, the left-wing Greens party or the right-wing Palmer United Party to get its measures through the Senate. All three parties have said they will reject various measures. They accuse the government of confecting a crisis to further an ideological agenda of reducing welfare.

Senate rejection of budget bills could result in fresh elections, although most observers say the passage of the budget measures in amended form was a more likely outcome.

"If you want an election, try us," opposition leader Bill Shorten warned Abbott in Parliament on Thursday.

Quentin Grafton, an economist at Australian National University, also believes there's no crisis. But he said it could be "misleading" to argue there's no need for action on the basis that Australia's situation isn't as bad as debt-mired Europe.

"We could end up that way quite easily and certainly the numbers were putting us in that direction," he said. "I think it's an impending crisis rather than an immediate crisis."