The economic surge caused by the end of China’s “zero COVID-19” restrictions cannot offset the impact to the Australian budget from the global economic downturn, Australian Treasurer Jim Chalmers said, just two days before he reveals his fiscal blueprint for this year.
Chalmers is tomorrow night expected to announce that Australia’s economy has returned to surplus for the first time in 15 years, benefiting from surging revenues from commodities exports and a persistently strong labor market.
Part of the budget windfall had been the Chinese economy picking up more quickly than expected over the past six months after the relaxation of COVID-19 restrictions, Chalmers said in an interview in Canberra yesterday.
China is Australia’s largest trading partner, with total trade more than twice as much as the next nearest country.
“But it’s offset by other things,” Chalmers told Bloomberg. “The global economy more broadly has been a bit softer than what people were anticipating.”
The IMF trimmed global growth projections in its latest outlook published last month, with world trade facing headwinds from stubbornly high inflation and rising borrowing costs.
The Reserve Bank of Australia unexpectedly hiked the cash rate to 3.85 percent on Tuesday, the highest level in more than a decade.
Despite difficult international conditions, Chalmers is tomorrow expected to reveal lower inflation and stronger wage forecasts than previously estimated, with unemployment peaking at 4.5 percent in the 2024-2025 financial year.
The treasurer yesterday said two-fifths of the dramatic turnaround in Australia’s revenue was driven by high wage growth and employment, while only 20 percent came from improvements in commodity prices.
However, budget deficits are expected to grow in the years ahead. Among revenue measures that would be detailed in the budget is a revamping of Australia’s petroleum resources rent tax, which is expected to raise A$2.4 billion (US$1.62 billion) over the coming years by capping generous deductions for the gas industry. The cap is to come into place on July 1.
Chalmers said the government had wanted to ensure a “fair return” for Australians with the tax changes, while keeping in mind its international supply obligations.
China and Japan voiced their concerns earlier this year that changes by Australia’s government to ensure domestic gas supply would hamper its ability to fulfill foreign contracts.
Australia has already imposed a price cap on domestic gas sales to soften energy expenditure for consumers in the wake of the Ukraine war, as well as raising costs on new gas exploration by legislating tougher action to contain carbon emissions.
“We want to make sure that this really important industry for Australia can continue to service its international obligations and its domestic obligations, that we continue to see investment in this sector,” Chalmers said.
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