Spending cuts make Oz budget a tough sell

Australian treasurer Wayne Swan is facing strong opposition from major business groups for his economic strategy. Photo / Mark Mitchell

Australian Treasurer Wayne Swan today begins the massive task of selling a budget scarred by broken promises and deep spending cuts to a nation polls predict will hurl him from office in September.

The budget is already under fire on two fronts - from a widespread belief it will not mean much after an election the Opposition seems certain to win, and its use of a 10-year timeframe lock in a new national disability insurance scheme and education reforms.

Even before Swan rose to present the budget to parliament last night, major business groups had begun campaigning about his strategy.

His key selling points are predictions of more jobs and stronger economic growth, disability insurance, better schools and a continuing overhaul of the health system.

"We face a clear choice - radical cuts to the bone that would risk jobs and our economy, or a sensible, calm and responsible approach that puts jobs first," Swan said.

"Just because the global economy took an axe to our budget does not mean we should take an axe to our economy."

Global economic woes and the strong dollar are forecast to strip more than A$60 billion from tax receipts in the four years to 2015-16. This year's forecast writedown of A$17 billion is the second-largest since the Great Depression of the 1920s, with a predicted deficit of A$18 billion in 2013-14.

Unemployment next year is expected to rise to 5.75 per cent.

But Treasury forecasts predict an improving outlook of solid growth, and low inflation and unemployment, with brighter news from China, the US and Japan. Demand for key resource commodities is expected to remain strong.

While mining investment would peak next year, stronger household consumption, a housing recovery and a modest boost to business investment would underpin growth across the rest of the economy, Treasury forecasts said.

Real growth in gross domestic product of 2.75 per cent is forecast for next year, rising to 3 per cent in 2014-15. The Treasury predicted a return to balance in 2015-16, and to surplus the following year.

But Swan announced cuts totaling A$43 billion over the forward estimates, including the deferrals of corporate tax cuts, a promised increase in family tax benefits, and an increase in the tax-free threshold planned as part of a package to compensate households for higher living costs associated with the carbon tax.

The Medicare universal health system levy will be increased by 0.5 per cent to help fund the A$43 billion disability insurance scheme, and A$2.3 billion will be pruned from universities to help pay for education reforms costing A$9.8 over the next decade.

The introduction of a 15 per cent tax on previously tax-free superannuation earnings over A$100,000 a year will save another A$900 million over four years. The public service will face cuts of A$580 million over four years.

Thin capitalisation rules and interest tax deductions for foreign exempt income will be tightened, with tougher capital gains tax provisions for foreign residents.