Australia: Budget deficit may last a decade

Treasurer Joe Hockey delivers his mid-year budget at National Press Club in Canberra, Australia. Australian Treasurer Joe Hockey has warned that the country's fiscal position is "unsustainable"

Related Stories

Australia's budget deficit may last for a decade if urgent "remedial action" is not taken to improve the country's finances, its government has warned.

In its latest economic outlook, the deficit was forecast to rise to 47bn Australian dollars ($42bn; £26bn) in the year to June as a result of a weakening economy.

That compares with a forecast for a A$30bn deficit made in August.

The country's 2014-2015 growth forecast was also downgraded to 2.5% from 3%.

Treasurer Joe Hockey said the economy was undergoing a tough transition and pledged to tighten spending.

"This is an unsustainable fiscal position and the government is committed to taking the hard decisions to live within its means," Mr Hockey said.

"More than half the deterioration in the budget position is due to the softer economy," he said.

"This reflects a sharper-than-forecast fall in resources investment and a slower recovery in the non-resources sectors."

Economic challenges
Holden Car factory in Australia Australia's Holden Cars, a unit of General Motors, will stop production by 2017

Australia's economy has been lifted by a mining boom over the past decade, driven by China's seemingly insatiable demand for natural resources such as iron ore and coal.

However, that trend has reversed in recent months because of a slowdown in China, Australia's biggest export market, and a weak global economy,

The reduced demand for commodities has pushed prices down, which in turn have hurt Australian mining businesses. Many have had to lay off workers and put projects on hold.

To try to stimulate growth, the Reserve Bank of Australia has cut interest rates to a record low of 2.5%, making it cheaper to borrow money.

But the effectiveness of that has been offset by the strength of the Australian dollar, which has put pressure on manufacturing industries such as carmakers.

Last week, General Motors announced it would stop production of its Holden cars and close its Australian plants by 2017.

The government said it expected challenging times ahead because global economic conditions remained "subdued".

"The Australian economy's growth transition from resources investment to the non-resources sector is also proving slower than expected," Mr Hockey said.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    RBS STATEMENT 07:21: Kamal Ahmed BBC Business editor

    Royal Bank of Scotland has given a statement to the BBC's business editor, Kamal Ahmed, it says: "The announcement we made about moving our registered head office to England was part of a contingency plan to ensure certainty and stability for our customers, staff and shareholders should there be a 'Yes' vote. That contingency plan is no longer required. Following the result it is business as usual for all our customers across the UK and RBS."

     
  2.  
    REFERENDUM REACTION 07:14: BBC Radio 4

    Patrick MacDonald former boss of John Menzies, tells the Today programme the debate over Scottish independence has changed the country forever. "Things will never be the same again," he says. There is now "a need to reform our 300 year old constitution" and the country also needs to work at reconciliation to "make sure businesses stay in Scotland".

     
  3.  
    RBS 07:08: BBC Radio 4

    A little more from Mike Amey on the referendum result. He tells Today: " I suspect there's a very large sigh of relief at RBS [over the result] They don't have to worry about where they were going to be based and how they were going to conduct their future business."

     
  4.  
    MARKET REACTION 07:07: BBC Radio 4

    Mike Amey, managing director and portfolio manage at bond trader PIMCO tells Today he expects the markets to open higher as a result of the Scottish referendum result. "It will be back to the data for our traders and what the Bank of England will do [on interest rates]."

     
  5.  
    MARKET REACTION 06:49: Radio 5 live

    Adam Parsons is in the City at the offices of stockbrokers IG with their chief market strategist, Brenda Kelly. She says the opening of the FTSE 100 might be quite as dramatic as some expect. That's because markets have been predicting this outcome over the last few days. However, she says, it could "break through 6930" which would be a record high.

     
  6.  
    06:42: Via Email Linda Yueh Chief business correspondent

    There are other uncertainties now for Scotland after this vote. But, for markets at least, the big uncertainty that could have lingered for a year and half over the currency and the economy is lessened and sentiment is positive as a result.

     
  7.  
    06:33: Louise Cooper, CooperCity market blog

    "So it's up up and away this morning, the question is how far does it [the pound] go before reality sets back in and other political fears begin to dominate: The rows in Westminster over devolution max which has been promised. The General Election and the UK referendum on EU membership. Party conferences season resumes next week so there will be plenty of headlines to be written about the next set of political risks."

     
  8.  
    CITY REACTION 06:27:

    The Lord Mayor of the City of London, Fiona Woolf has welcomed the outcome of the Scottish referendum. "The proposed enhanced devolution that Scotland will experience while remaining in the UK will enable its national spirit to thrive while our entwined economies and business communities prosper together," the Lord Mayor said.

     
  9.  
    YES CAMPAIGN CONCEDES 06:23: BBC Radio 4
    Scottish first minister Alex Slamond

    Scotland's first minister Alex Salmond has hailed 1.6 million votes for independence. He concedes that "we now know there is going to be a majority for the "No" campaign". Scotland has, by majority at this stage, voted not to become an independent country," he adds. He expects devolution promises to be honoured with "rapid force".

     
  10.  
    ROYAL BANK OF SCOTLAND Via Email Kamal Ahmed BBC Business editor

    With No confirmed as the winner in the referendum, we can expect the Royal Bank of Scotland to say there is now no need to move domicile to London. The bank had prepared for a "Yes" vote by saying last week that it would move its headquarters from Edinburgh. I wouldn't be surprised if Ross McEwan, the chief executive, re-iterated the bank's commitment to Scotland. I am sure RBS's executives are relieved that the upheaval of independence will now not happen.

     
  11.  
    POUND STRENGTHENS 06:12:

    A decisive win for the No campaign could lead to big spike in the Pound. Jeremy Cook, economist at World First says. The obvious risk to the currency markets was a Yes, and that would have caused a big sell off. Now the markets will go back to concentrating on the fundamentals of the UK economy," he adds.

     
  12.  
    SCOTLAND INVESTMENT 06:01:

    Simon Walker, director general of business group the Institute of Directors has given an interview to the BBC. He says he thinks the government will now give the green light to investment projects that had been previously held up because of the uncertainty caused by the independence referendum. He adds the ending of that uncertainty will be positive for business.

     
  13.  
    POUND STRENGTHENS 05:54:
    pound versus dollar

    This chart shows the pound against the dollar over the last month. You can see it dipped to a low of $1.6071 on 10 September. That was after a poll in the Sunday Times showed a lead for the "No" campaign. It is now trading at $1.65. That's a move of 5 cents which is pretty big over two weeks.

     
  14.  
    MARKET UPDATE 05:47: BBC Radio 4

    Asian markets are up nearly 2% overnight BBC business correspondent Linda Yueh, tells Today. The market indications are that the FTSE 100 will open 0.7% higher. That's not exactly a surge but it is a positive reaction.

     
  15.  
    BANK OF ENGLAND 05:42: BBC Radio 4

    Justin Rowlatt is down at the Bank of England for BBC Radio 4's Today programme: He says the lights are on and staff are busy working inside. Although perhaps not quite as frantically as if Scotland was looking on course to vote Yes in the referendum. Bank governor Mark Carney cut short a meeting to fly home overnight. "He may have had a wasted trip," Justin says.

     
  16.  
    POUND STRENGTHENS 05:36:
    Pound dollar

    This chart shows how the pound has faired against the dollar since the polls closed in Scotland on Thursday evening. As you can see it's strengthened from a low of $1.63 to above $1.65, that's its highest point since the start of the month. In currency market terms it's also a huge move in a short space of time.

     
  17.  
    05:30: Ben Morris Business Reporter

    The pound has bounded higher overnight in reaction to the Scotland vote. More reaction through the morning. Stay with us.

     
  18.  
    05:30: Matthew West Business Reporter

    Morning folks. It looks like - with 26 of 32 local authorities now having declared the result of their ballots- that the No campaign is on course to win the Scottish independence referendum. We'll bring you all the reaction from the financial markets and the business community as it comes in. As always if you want to get in touch you can email us at bizlivepage@bbc.co.uk or tweet us @bbcbusiness.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.