Australia slashes budget to rein in debt

Australia slashes budget to rein in debt

The first budget of Australia's Abbott government slashes more than A$80 billion (S$94 billion) in foreign aid, health and education spending in a risky effort to reduce the nation's growing debt.

While analysts warned that the measures could dampen growth and delay likely interest rate rises, the government insisted it was not delivering an austerity budget but a "budget repair".

The conservative coalition government aims to reduce the deficit to A$30 billion next year, and to just A$3 billion by 2017-18.

In moves that break Prime Minister Tony Abbott's promises and are unlikely to be popular, the budget lowers pension increases from 2017, cuts welfare payments for unemployed people under 25, and forces people to pay A$7 to visit family doctors, when such visits are now free.

The economy has suffered in the wake of a mining slowdown but remains one of the world's strongest - tipped to grow 2.5 per cent this year and 3 per cent in 2015-16.

The budget, delivered in Parliament last night by Treasure Joe Hockey, marks the biggest wind-back of welfare and public spending in almost 20 years. It also raises taxes on fuel and adds a 2 per cent tax for people earning more than A$180,000, despite Mr Abbott pledging not to raise taxes and attacking the opposition for years for breaking its own pledge not to do so.

"We know that for some in the community, this budget will not be easy," Mr Hockey told Parliament last night. "But this budget is not about self-interest… Doing nothing is not an option. The days of borrow and spend must come to an end."

Foreign aid is to be reduced by A$7.6 billion over the next five years, effectively abandoning Labor's pledge under the United Nations Millennium Development Goals to raise spending to 0.7 per cent of gross national income by 2020. Australia's aid agency, AusAID, will be merged with the Department of Foreign Affairs and Trade.

"Australia's aid programme is being reshaped to ensure it is effectively promoting economic growth and poverty reduction, reflecting our national interest and the changed international context," the budget documents said.

But the government will boost spending on defence by almost 2 per cent to A$29.2 billion this year, and total defence spending over the next four years will be A$122.7 billion.

It has also introduced a new A$20 billion medical research fund - to be the biggest such fund in the world. It forecast Australia's outlay on the continuing search for the missing Malaysia Airlines plane at A$90 million over the next two years.

Universities will face budget cuts but are freer to raise tuition fees, while the retirement age will be lifted to 70 by 2035. About 16,500 public service jobs will be cut.

Analysts said the budget was the nation's toughest since former coalition prime minister John Howard's first budgets in 1996 and 1997. Despite Australia's strong economy, debt has ballooned after six successive budget deficits.

Net debt is set to rise to 14.6 per cent of gross domestic product by 2016-17, the highest in about 20 years but still low by international standards.

Economist Chris Richardson, from Deloitte Access Economics, predicted likely interest rate rises will be delayed to next year as growth slows.

"They are trying to walk the fine line between repairing the budget and maintaining the economy," he told ABC News.

However, some analysts said the cuts were "nasty" and unfairly hard on the poor.

"Failure to make tough decisions wouldn't have turned us into Greece, but since when was that the most we aspired to?" said veteran commentator Ross Gittins in The Sydney Morning Herald.

"But it's hardly austerity economics. Only those people right at the bottom of the ladder have been hit hard - unemployed young people, the sick poor and, eventually, aged and disabled pensioners."

Labor was quick to seize on Mr Abbott's broken tax promises, accusing the government of a "budget of deceit".

"It has an attack on low- and middle-income earners," Labor's Treasury spokesman, Mr Chris Bowen, told ABC News. "You now have to decide whether to take a sick child to a doctor or pay your bills. Your health should not be measured by your wealth."

This article was published on May 14 in The Straits Times.

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