Australian Budget Surplus May Exceed Government Estimate

by Mary Swire, Tax-New.com, Hong Kong

02 May 2003

The Australian budget surplus may be even larger than the government's own $2.1 billion estimate, according to research by investment bank Westpac. This is mainly due to a healthy increase in tax revenues brought about by a robust Australian economy, the bank says.

Tax revenues are up some 10% for the first eight months of 2002/2003 according to reports, which is way above Finance Minister Peter Costello's own estimate of a 4% increase in November last year. The cost of sending troops to Iraq has also already been factored into the equation.

However, despite this rosy fiscal picture, the government is unlikely to ease taxes, according to Westpac.

"The issue is that reducing the tax burden on middle Australia is not cheap," the Westpac report revealed. "To either raise the tax threshold or reduce the 42% or 47% rate would cost in the order of $3 billion to $4 billion."

According to Westpac's estimates, this could seriously dent the government's surplus, which it predicts will be $2.4 billion in 2004/2004, rising to $4.4 billion the following year.

Despite the Howard administration's caution, the Australian economy continues to buck the global trend of slower growth, and is forecast to grow 3.8% in 2004. These figures prompted Costello to talk up the Australian economy at a recent OECD meeting in Paris, where he commented: "Australia is a very good opportunity, not only for investment – about 20 million people live in Australia – but also it is a base for investment into the east Asian region."

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