March 29, 2019 / 8:53 AM / 4 months ago

Australia's new budget seen splashing cash in bid for votes

SYDNEY (Reuters) - Discounts of up to 75 percent have emptied shelves at grocer Golden Banana in a Sydney suburb, but owner Micky Lapa won’t be restocking - she’s shutting after 30 years.

Owner Micky Lapa of Golden Banana prepares for her store closure on March 31, in Sydney, Australia, March 29, 2019. REUTERS/Swati Pandey

Stiff competition, high rents and utility bills plus anemic household consumption have squeezed small businesses across Australia, fuelling discontent with a conservative government that opinion polls say will lose a federal election due by May 18.

“I don’t think I can vote for the current lot,” Lapa said.

In an effort to arrest its slide in popularity, the government led by Prime Minister Scott Morrison will on Tuesday unveil a budget for the year starting July 1 that is expected to feature an avalanche of spending.

Armed with stronger tax revenue and higher prices for Australia’s commodity exports, Treasurer Josh Frydenberg’s budget proposal will likely include increased infrastructure spending, bigger personal tax cuts than made a year earlier and possibly cash handouts to households.

Helping Frydenberg is an anticipated budget surplus of around A$4 billion ($2.84 billion) for 2019/20, which would be the first since 2007/08.

With the economy “ailing” and an election near, AMP chief economist Shane Oliver expects the budget will have about A$6 billion more in tax cuts than the current one.

The upside of the government’s strategy is that a budget surplus “is within sight after a record 11 years in deficit and the household sector will receive a boost just at the time it needs it,” Oliver added.

The downside, he said, is that tax cuts may provide a smaller boost to the economy than putting checks in the mail or lifting government spending.

LAST CHANCE?

HSBC economist Paul Bloxham expects tax cuts and spending measures could deliver around A$8 billion-A$12 billion support to the economy while Citibank economists predict one-off cash transfers directly to households.

This budget could be the ruling coalition’s last chance to win back enough votes to retain the power it has had since 2014. It has trailed its Labor opposition since mid-2016, according to a widely-watched opinion poll.

But Morrison has to be careful his Liberal Party doesn’t undermine its argument that it is a better economic and fiscal manager than Labor.

“The government has carved out a reputation as a trusted manager of the economy,” said Rodney Smith, a political science professor at the University of Sydney. “A budget that is clearly a bid to buy votes would be transparent and risks its reputation.”

(Graphic: Australia's economy, consumer spending slows; terms of trade jumps - tmsnrt.rs/2Val73S)

A cash splash should be welcomed by the Reserve Bank of Australia (RBA) as an expansionary budget should help combat a slowdown in domestic activity.

Annual economic growth eased to a sub-par 2.3 percent in the last three months of 2018, while early indicators suggest this year has started on a weak footing, prompting financial markets to price-in an interest rate cut in August.

The central bank has left rates at a record low 1.50 percent since August 2016 and has shown no inclination to cut them anytime soon, despite a tumble in the property market.

FILE PHOTO: Australian dollars are seen in an illustration photo February 8, 2018. REUTERS/Daniel Munoz/File Photo

And the April 2 budget is unlikely to provide much boost to housing prices as home affordability and wealth inequality remain political issues.

The household tax-to-income ratio has risen to a 13-year high, according to ANZ economist Cherelle Murphy, weighing on consumption.

“Public is not willing to spend, they go for the cheaper options,” Golden Banana’s Lapa said. “I cannot live off the crumbs left by the big guns, it’s just not possible anymore,” she added, referring to Australia’s expanding supermarket giants.

Reporting by Swati Pandey and Colin Packham; Editing by Richard Borsuk

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