Australia hits banks with higher taxes to bring budget back into black

CANBERRA: The Australian government pledged to deliver a small budget surplus in 2020/21, slapping big banks with new taxes to end more than a decade of deficits that have threatened its prized triple-A credit rating.
Flagging in the polls, the Liberal Party-led coalition conservative government, also promised to fast track major rail and road projects and delivered some sweeteners for home buyers in an overheated property market in its annual budget on Tuesday.
Treasurer Scott Morrison said the country’s profitable banks, which have been under fire in recent months amid a series of misconduct scandals, would bear the brunt of a budget “re-set” as he abandoned so-called “zombie savings” worth some A$13 billion.
Those savings, including welfare reforms, had artificially reduced the red ink in the budget after they were blocked by opposition lawmakers in a hostile Senate where the government has a wafer-thin majority.
The backflip resulted in a bigger A$29.4 billion deficit for 2017/18 than the A$28.7 billion forecast at the mid-year review in December.
But the budget forecast a A$7.4 billion surplus in 2020/21, an improvement on A$1.08 billion at the mid-year review.
Australia’s A$1.7 trillion economy has outperformed many of its rich world peers since the global financial crisis, but it has in more recent years struggled to manage the end of a mining investment boom that underpinned much of its wealth. “We must live within our means and this is an honest budget,” Morrison said, adding that a new six-basis point levy on big banks’ liabilities, to kick in on July 1, would raise A$6.2 billion over the next four years.
Morrison described the measure, along with a A$8.2 billion income tax increase on workers, as “basically a Senate tax” to get the budget back into balance as demanded by ratings agencies or risk losing its triple-A credit rating.
Marie Diron, associate managing director of Moody’s Investors Service, said the agency assessed Australia’s fiscal strength as “very high, a key support to the government’s triple-A rating and stable outlook” after the budget.
Diron added that the removal of the zombie measures “enhances the transparency and predictability of budget outcomes, a credit positive.” Mervyn Tang, director of Asia-Pacific sovereigns at Fitch Ratings, said the new revenue measures in the budget implied a faster reduction in the government deficit.
He said Fitch would look closer at new policy measures on the economy and housing market, “factors we have identified as rating sensitivities in our previous review.”
Standard & Poor’s did not immediately comment on the budget.
But Australian Bankers’ Association Chief Executive Anna Bligh criticised the new tax, which Morrison warned banks against passing on to consumers. — Reuters