Australian Treasurer to announce surplus budget

Treasurer Wayne Swan. Photo / Getty Images

Federal Treasurer Wayne Swan will trample over his critics tonight when he announces a budget built around a small surplus gained at the cost of deep spending cuts.

Analysts believe he will buy a surplus of about $1.5 billion with savings of up to A$10 billion over the next two years, a number of which have already been leaked as the Government tries to soften up a largely hostile electorate.

While turning around an expected 2011-12 deficit of between A$37 billion and A$40 billion, Swan has also sprinkled what is likely to be the toughest budget in 16 years with sweeteners for both families and business.

Bringing the budget back into surplus has become a political imperative for the embattled minority Labor Government, despite widespread concern among business, welfare and community groups that the costs might be too high.

Given a political mood that threatens a landslide defeat at next year's election, failure to push the budget back into the black could deal a fatal blow.

Selling the budget to a sceptical public, even with a surplus, will be difficult enough.

The Greens and independents who hold the balance of power will not block supply but they have warned they might oppose individual measures in parliament.

The settings for Swan's strategy have narrowed his options.

While Australia has weathered global economic storms better than most, the clouds are closing in: key non-mining sectors such as services, retail, housing and manufacturing are struggling, and profits are down.

Swan estimates that revenues have fallen by about A$150 billion, and state finances are likely to be hit hard by plummeting GST payments as consumers tighten their belts.

The Reserve Bank has also pruned its growth forecasts to 3 per cent for the next two years and uncertainty remains over the new carbon tax, which starts on July 1.

Swan's strategy is to cut deep to provide a buffer against potential global storms while allowing sufficient flexibility in fiscal policy.

"Getting the budget back in the black is critical, particularly because of economic uncertainty in the global economy," he told the Nine Network.

The budget will not be all bad news.

About 110,000 small businesses will be able to claim losses of up to $1million against tax they have paid in the previous two years, a break designed to help struggling concerns survive tough times and act as incentive to invest and diversify.

Families will gain from means-tested annual bonuses of A$410 for each primary school child and A$820 for secondary students, replacing existing school-related refunds as part of the compensation for higher costs expected from the carbon tax.

Swan will also announce a A$515 million dentistry package to cut a public waiting list of more than 400,000, and encourage dentists into rural and remote areas.

The new programmes and Swan's surplus will be funded by spending cuts that include up to A$5 billion in defence, A$1 billion from increased superannuation tax levels for high-income earners, and A$700 million from the axing of support payments to single parents when their youngest child turns eight.

The public service is also expecting further cuts.