Australia Faces 'Massive Hit' to Government Revenue, Swan Says

http://www.bloomberg.com/news/2013-03-17/australia-faces-massive-hit-to-government-revenue-swan-says.html

Australian economy has not been on the news as much as that of the United States and European Union. After reading this article I was surprised to see some of the economic difficulties that current Australian government is facing in the light of an upcoming election. Despite Mr. Swan's (country's Treasurer) prediction that the reduction in revenue would only add A$2 billion to deficit, the national deficit reached A$4.6 billion in the first four weeks of 2013 and A$26.8 billion in the first seven month of the financial year. This is a significant miss on the part of nation's Treasurer that certainly adds to rising economic uncertainty. This uncertainty puts Labor Prime Minister Julia Gillard in a difficult situation before the election.

Data released by the Finance Minister suggest an increase in revenue by 7.7 percent during the first seven month of the financial year, compared to last year. This is an encouraging number, which could have resulted from more people finding employment and ultimately contributing to income tax revenue that government collected. On the other hand, an increase in income tax payments could have resulted from an increase in income tax rates. On contrary, company tax receipts fell, raising some warning signs. This could suggest that the government  either lowered corporate tax rates or corporate activity fell. Additionally, mineral resource rent tax on iron-ore and coal profits raised A$126 million in revenue in the first six month, which was lower than expected by the government.

The Labor government support amongst voters increased 3 percentage points while the support of Liberal-National coalition fell 3 percentage points. The swing in voters support puts two parties at almost even split. We can conclude that the policies put in place by current government are starting to earn public support but an inability to deal with rising national deficit makes future election outcomes uncertain. It will be interesting to see how the national deficit will affect the outcomes of the election.