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Politics

Australia whips out its wallet with growth-oriented budget

Treasurer Joe Hockey   © AAP

CANBERRA -- Australia's proposed budget for the fiscal year ending June 2016 marks a step away from the unpopular austerity policies of its predecessor, stepping up spending despite an expected drop in revenue.

     The budget -- the second put together under Prime Minister Tony Abbott -- shows the lessons learned from the previous year. In the fiscal 2014 budget, the government made painful cuts to health care and educational spending in its haste to put Australia's fiscal house in order. This hurt its approval rating, not only keeping major reform bills from getting through Parliament but also endangering Abbott's job.

     The new budget, announced Tuesday, incorporates measures that border on pork-barrel spending in a bid to win back lost support.

     It focuses on supporting small and midsize enterprises, which make up 96% of Australian businesses. The tax rate on companies with annual turnover below 2 million Australian dollars ($1.59 million) will be cut 1.5 percentage points to 28.5%. Small businesses are a source of technological innovation, Treasurer Joe Hockey explained in a news conference.

     The budget also strengthens policies to improve employment opportunities for families raising children. In 2016, Australia will offer subsidies for hiring nannies to such caregivers as mothers with irregular working hours. And in July 2017, it will set up a system to cover as much as 85% of household expenses for child care services, depending on income.

     The document lays out plans for infrastructure construction in northern Australia, large swaths of which are undeveloped. The government will provide up to A$5 billion in financing for port, railroad, pipeline and other projects, aiming to encourage foreign investment in agriculture.

No free pork lunch

Spending is expected to rise 3.4% to A$434.5 billion for the fiscal year. But tax revenue is seen at just A$405.4 billion, up 5.5%. The cash-based primary deficit is projected at A$35.1 billion -- double the government's fiscal 2015 forecast at its formation.

     This owes in part to expected tax receipts shrinking A$14 billion from the original forecast. Revenue is being hit by a plunge in iron ore prices, which have fallen by half over the past year amid sluggish Chinese demand.

     With some expecting a protracted slump in prices, Australia urgently needs to overcome its dependence on resources to ensure stable growth. Mining accounted for 45% of the nation's growth over the last three years. The government aims to slash this to 16% for the next three years while cultivating such industries as education and tourism. The new budget also includes such revenue boosters as stronger steps to combat tax avoidance by multinational corporations and a tax on online purchases of digital products.

     The government has not changed its target of a budget surplus by fiscal 2019. But hopes of a return to fiscal health may fade if it spends too freely in an effort to hold on to power.

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