Australia budget deficit blows out, deposit tax unveiled

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#1
those holding Oz FDs in sg impacted?, should pray hard

SYDNEY: Australia said on Friday its budget deficit has blown out to A$30 billion and revenues are shrinking, as it unveiled a pre-election mini-budget that includes a controversial plan to tax bank deposits.

The government also cut its growth outlook for the fiscal year to June as the mining-driven economy grapples with a slowdown in China that has seen commodities prices tumble.

With national polls approaching, Treasurer Chris Bowen said tough conditions had seen a further A$33.3 billion wiped off revenue estimates over the next four years.

This, he said, had forced the ruling Labor party into US$17.4 billion of "responsible savings".

The statement's release added to speculation that Prime Minister Kevin Rudd could call an election as early as this weekend, having now outlined fresh budget numbers as well as new policies on a raft of key issues.

Polls must be held before the end of November, with the Tony Abbott-led conservative opposition expected to narrowly win, although Rudd has clawed back significant support for Labor since ousting Julia Gillard in June.

In its statement, the government also upped its forecast unemployment rate in 2013/14 by 50 basis points to 6.25 per cent.

However, while the budget deficit for this fiscal year had ballooned from the A$18 billion forecast in the May budget, Bowen stuck to the government's plan to return a surplus in 2016-17.

He said the fall in commodities prices sparked by weakening growth in key export market China meant Australia's economy would grow 2.5 per cent in July-June, slower than the 2.75 per cent forecast in May. It is expected to rise to 3.0 per cent in 2014/15.

"The transition in the resources sector from a record investment boom to strong growth in production and exports is currently under way," he said.

"This will mean that non-mining sectors of the economy will need to lead growth in the future. This transition poses challenges for the economy."

AMP chief economist Shane Oliver said he was stunned at the scale of the deficit and speed at which it had worsened.

"I'm shocked by how much it has deteriorated," he said, adding that the promised return to surplus has been repeatedly delayed.

"We seem to keep pushing out the return to surplus and the return to surplus gets steeper and steeper as time goes by," he said.

In a bid to plug its revenue shortfall, the government this week announced a plan to hike tobacco taxes by 12.5 per cent per year over the next four years, to raise more than A$5.0 billion.

And on Friday, Bowen said he will also tax bank deposits up to A$250,000 at 0.05 per cent from 2016, raising a forecast A$733 million in the first 18 months.

Bowen said the cash would go into a new Financial Stability Fund, but will be counted as revenue in the budget, to protect savings in the event of a bank collapse.

"It'll be quarantined from the rest of the budget and just put aside in case there's ever a need with a bank getting into trouble in Australia," he said. "It hasn't happened in Australia for quite a while, but we can't be complacent."

He said the levy had been recommended by the Reserve Bank of Australia, the International Monetary Fund and the Australian Prudential Regulation Authority, but the banking industry said it was not necessary.

"This is simply a cost on Australians that is not really going to deliver any benefits in terms of what is already a very stable and safe system," said Australian Banking Association chief Steven Munchenberg.

Bowen insisted the government had struck the right balance between savings and spending.

"The task of government continues to be to drive efficiencies and to find savings which are real and sustainable," he said.

"We've made revenue decisions and we've made spending decisions ... we've struck the right a balance."
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#2
?? Seriously cannot understand why one would even consider self - inflicting such a wound ?? Banks runs impossible ? ? Really cannot understand how this is possible.
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#3
it still isn't clear whether the tax is on the depositors as the news were worded as tax on the bank deposits. Maybe it is the tax on the bank's deposits. If so, then depositors bo tai chi?
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#4
I think the tax is on the banks, not on the consumers.
just eating into their banks net interest margins?
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#5
(03-08-2013, 06:44 AM)pianist Wrote: it still isn't clear whether the tax is on the depositors as the news were worded as tax on the bank deposits. Maybe it is the tax on the bank's deposits. If so, then depositors bo tai chi?

given that the cash rates are still >2%, the banks are likely to just pass it onto savers in the form of lower interest rates.
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#6
in the end garmen wins and consumers lose, stupid policies
they are punishing savers
they should have more consumption taxes instead
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#7
the banks will have to cough up the interest directly, deposits original capital is safe..

the rationale is this tax will help with the government bank deposit guarantee of up to 250k per account per bank that AU government put in place during the last GFC but did not charge for the guarantee.

So seems like they wanna get some funding from the banks directly using this as an excuse as they are starting to scratch their heads on how to fund the massive up-coming budget deficits. Historically australian public has been very against any sort of increase in government debt. Very focussed on balancing the budget here...
Virtual currencies are worth virtually nothing.
http://thebluefund.blogspot.com
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#8
(03-08-2013, 10:22 AM)felixleong Wrote: in the end garmen wins and consumers lose, stupid policies
they are punishing savers
they should have more consumption taxes instead

I don't know whether australian policy is stupid or not.

But the way you think is not rational at all. Encouraging saving but damaging consumption is one way to hell for any meaningful economy.
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#9
For 250k, this is more likely to be on depositors. If this is on bank's deposit, they would not quote a an amount. This will be whatever deposit these banks parked in the Reserve which are likely to be in millions or billions or trillions.

0.05% seems nothing compare to their saving interest rate (around 3-4%?). Effectively, they earn less in terms of interest unless they account doesn't earn interest. Is that not the case?

Actually I don't think their policy is stupid. Comparing to reducing interest rate to spur growth in the hope of collecting more tax revenue to plunge the deficit gap is more damaging especially when so many big economies are already doing it and another big economies coming in to do it can destabilised a somewhat fragile achievement these economies gotten so far. Reducing interest rate will lead to bank cutting their saving rates so either way, consumer's real spending power is reduce. But reducing interest rate will hit their currencies leading to inflation so their real spending power will get hit twice.
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#10
aud dropped a lot against sgd, with another rate cutting in the coming month, carry traders all ran away...but surprisingly nzd didn't move much
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