Australian Treasurer Costello Will Ignore Calls for Tax Cuts in Budget

Bloomberg | May 12, 2003 | Gemma Daley

[bruinbirdman]

Canberra, Australia, May 12 (Bloomberg) -- Treasurer Peter Costello will ignore calls for tax cuts in Australia when he releases the budget tomorrow, preferring to keep an expected cash surplus for an election next year, economists say.

Costello will forecast a A$1.9 billion ($1.2 billion) surplus in the year ending June 30 which may rise to A$3 billion in fiscal 2004, economists surveyed by Bloomberg News said. Everyone from the lowest paid workers to business leaders are calling for Costello to pass on some of the surplus in tax relief when he delivers the budget at 7.30 p.m. Sydney time.

They will get little joy this year as Costello hoards the surplus for next year's budget, which will be released just before a federal election. Costello may go into that election as leader of the country if Prime Minister John Howard retires this year, political analyst Malcolm Mackerras said.

``Costello wants a surplus to try to win over voters, who don't like him very much, at a November 2004 election,'' Mackerras said. ``The 2004 budget will be the last one before a poll when he may be prime minister. He needs every cent to try to stay there.''

Eighteen percent of voters prefer Costello and 68 percent prefer Howard as prime minister, a Newspoll last week showed.

Howard, who turns 64 on July 26, said he would announce plans ``in the not too distant future'' about whether he will retire.

The Australian Council of Trade Unions wants Costello to cut taxes for Australia's lowest-paid workers, an industry group wants tax cuts for all workers and an employer group wants company levies slashed.

`Tax Burden'

``Businesses are laboring under the tax burden,'' said Garry Brack, chief executive officer of Employers First, a lobby group. ``We would like to see lower company levies and less spending on welfare to help businesses invest.''

The government has reduced company levies to 30 percent from 36 percent in the past four years. Businesses like Woodies Woodturning in Sydney hope Costello will extend those reductions.

``The government is relying on business investment to help the economy, although we will struggle to do that,'' said factory owner Luke Ommundson. Woodies makes couch legs for Freedom Furniture Ltd.

The Australian Industry Group wants the government to reduce levies on salaries. Australian workers pay as much as 47 cents of every dollar earned in a salary of more than A$60,000 a year.

Economic Growth

``Australians are being pushed into higher income tax brackets,'' said Bob Herbert, the group's chief executive, in a statement. ``We should not be asking middle income earners to pay between 42 cents and 47 cents in the dollar in tax on some of their wage.''

Costello will forecast the economy to grow 3.4 percent in fiscal 2003 and 3.4 percent the following year, economists said.

``I don't think we are going to see any tax cuts in what is probably Costello's final budget,''' Brack said. ``This is probably still one of the best performing economies in the world and the highest taxing for workers and companies.''

Costello and Howard have promised the fiscal 2003 budget will be in surplus, even with slower economic growth, and that security will dominate spending in fiscal 2004.

``It's pretty close to three quarters of a billion dollars just for Iraq,'' Costello said yesterday in an interview with the Nine Network's Sunday program. ``We're going to have to re-equip Australia's capacity in relation to war and special operations.''

The government has boosted hospital funding by as much as 17 percent in the five years starting June 30 and spending on doctors by A$917 million in the next four years.

Bond Market

Newspapers have reported that the government will sell A$700 million worth of land to offset the cost of the war in Iraq and delay selling Medibank Private, the nation's biggest health insurer.

Costello last year indicated he wanted to pay off the government's debt, doing away with the bond market. He indicated in March he would release a statement on bonds in the budget.

Debt will fall to A$12.7 billion, or 1.5 percent of economic growth, in fiscal 2004 and will be wiped out in the year after that, Costello said in November.

``I expect the government to announce its preferred framework for maintaining a bond market with a gross issue of A$50 billion to A$60 billion if net debt falls further,'' Don Stammer, a director at ING Australia Holdings Ltd., said in an interview. ``The government now sees the merit in maintaining a market for government bonds even if it is able to secure the full privatization of Telstra Corp.''

Costello in November delayed selling Telstra, Australia's biggest phone company, for 12 months until the year beginning July 1, 2004. The government will use the proceeds from the sale, some A$28 billion on today's prices, to pay off government debt.