Wayne Cole

SYDNEY, (Reuters) – Australia’s centre-right government will unpack a budget full of cash giveaways, cuts to petrol taxes and spending on infrastructure as it attempts to recoup votes in what is likely to be a difficult election in May.

The budget for Tuesday is likely to reduce the deficit. This is because of the skyrocketing commodity prices in Australia that have flooded the government with cash while an amazingly strong labor market has reduced expenses.

The ruling Liberal National coalition, after decades spent complaining about deficits has decided that protecting economic growth was more important than cutting debt.

Gareth Aird (CBA chief economist) stated that “there will not be a policy pivot towards austerity.” The government will aim to stabilize and reduce gross debt, as part of the economy.

This could be partly because Scott Morrison, Prime Minister of the United Kingdom is falling behind in opinion polls to Labour Party. The Labour Party is currently favorite to win May’s elections after 10 years in power.

Additional billions were earmarked for airports and railways. More than A$5billion ($3.76billion) was earmarked to construct dams that are preferred by Queensland farmers.

Josh Frydenberg from the Treasurer has suggested a cash transfer to pensioners, as well as temporary cuts in petrol taxes. This is to assist with rising food and fuel costs.

The voter-friendly option also includes an extension of the popular grant to first home buyers, which is intended to calm concerns about affordability in light of long-term price booms.

This is a good thing for government because the enormous windfall of high resources prices and low unemployment can easily be used to finance this additional spending without any extra borrowing.

The iron ore and coke prices are significantly higher than expected and have huge potential to be exported from Australia.

Analysts project that the deficit for the year ending June 2022 will be A$70-A$80 trillion, a decrease of A$99.2billion in December. It is anticipated that the shortfall will remain at this level until 2023/24 before decreasing further.

The commodities boom also facilitated a dramatic turnaround in Australia’s current account to surplus from deficit. This has helped protect the country’s triple A credit rating.

The budget forecasts regarding unemployment will be reduced as the rate of joblessness has fallen quicker than expected.

Due to the rapidity of the fall, Reserve Bank of Australia (RBA) has suggested a possible increase in interest rates from the pandemic-lows of 0.1% in the latter part of the year.

($1 = 1.3316 Australian dollars)