Australia: Labor budget is surprise
The Australian stock market reacted enthusiastically to the first budget of the new Labor government. Public reaction has been more muted, but generally favorable, despite increased indirect taxes on alcohol, tobacco, and motor and aviation fuels.
The public had been led by the media to expect increases in taxes on higher incomes and cuts in some social security payments. Instead, the government raised spending for the unemployed, students, and aboriginal welfare programs. Federally funded low-income housing construction also recieved a substantial increase.
Business was pleased with the absence of any new taxes or higher income taxes and the general retention of existing subsidies.
For the past six months the government had promised a budget deficit of $8.5 billion ($7.5 billion US), equivalent to about 4.7 percent of gross national product.
While this was originally regarded with horror by the business world, that view has changed to: if the government can stick with this target, business can live with it.
The actual Australian-currency deficit forecast by Treasurer Paul Keating was
Mr. Keating forecast that, in the 1983-84 year, inflation would drop from over 11 percent to 7.5 percent, unemployment would increase only marginally, and employment would increase by 130,000. The economy is expected to grow at about a 3 percent rate for the financial year, compared to the negative growth of about 2 percent last year.
Politically, the budget ruffled few feathers. It cautiously avoided hitting the middle class, on whom the Labor Party depended for its victory in the elections in March. However, it did not deliver the whole range of job-creation programs some blue-collar workers and the unemployed would have expected from Labor.
Nor did it provide the tax cuts Prime Minister Bob Hawke promised in the election campaign, but the prospect for these cuts faded months ago, when the government revealed that the previous government had seriously understated the extent to which the previous budget was overshooting its deficit prediction.
Following the budget announcement, the stock market added its voice of approval, rising over 6 percent to a new high for industrial stocks and a two-year peak across the board.