Australia expects a fiscal surplus in 2012/13 and will seek to ease a shortage of skilled workers that threatens to fuel inflation as the economy rides an historic resources boom, the minority Labour government said in its first budget on Tuesday.
Treasurer Wayne Swan said Australia - the only major developed nation to avoid recession during the global financial crisis - faced major hurdles in handling the Asia-led resources boom, a soaring Australian dollar and a two-speed economy that has left non-mining industries struggling.
"With the investment pipeline ramping up and unemployment falling, the boom will test our economy and our workforce, and price pressures will re-emerge," Swan told parliament in delivering the 2011-12 budget. "We need to bring our budget back into surplus in 2012-13 so as not to compound price pressures from a mining boom we have not witnessed before in our history."
The Reserve Bank of Australia has warned interest rates - raised seven times since late 2009 - will have to climb further to keep a lid on inflation. Underlying inflation has already bottomed at just over 2.0 percent and the bank sees it rising to the upper end of its 3.0 percent target by the end of 2011. Prime Minister Julia Gillard rules in a minority, but a handful of independent and Greens MPs have pledged not to block the budget and bring down the government. They are, however, likely to seek concessions for continued support.
"It's lacklustre this budget. It is failing in vision. We guarantee supply and we guarantee we can improve this budget," said Greens party leader Senator Bob Brown. Economists said there was little in the budget to stop the central bank from hiking interest rates within months, while business leaders remained concerned about the high local dollar.
"Fiscal policy is moving in a contractory direction but that's been the case for a little while... that would already have been built into the Reserve Bank of Australia's thinking," said Michael Blythe, chief economist for Commonwealth Bank. Australian unemployment is below 5 percent and nearing 4.5 percent, a level considered full employment, threatening to overheat the jobs market, fuel wage inflation and endanger key resource projects.
"The economy cries out for workers. Just as our focus on jobs helped Australia beat the global financial recession, so too can a focus on jobs ensure we maximise our advantage in the Asian century," Swan said. Swan predicted the deficit would total A$49.4 billion in 2010-11 - equivalent to 3.6 percent of GDP - then more than halve to A$22.6 billion in 2011-12 before hitting a surplus of A$3.5 billion in 2012-13, in part with the aid of a planned mining tax.
Australia's 2011/12 deficit is projected at 1.5 percent of GDP, well below the 10.8 percent forecast for the United States and the 8.6 percent expected for the United Kingdom. Australia's economy is forecast to grow by 4 percent in 2011-12 and 3.75 percent in 2012-13, after recovering from a series of natural disasters in 2011 which chopped 0.75 percentage point off growth.
Many of Australia's major miners, like BHP Billiton, Rio Tinto Ltd and Xstrata were forced to curb iron ore and coal mining and exports after floods and cyclones flooded pits, damaged transport lines and closed ports. Australia's economy is benefiting from a record terms of trade and a climbing currency - up 19 percent in the past year to A$1.07 to the US dollar - but some worry about a "two-speed" economy.