Swan to boost skilled migrant workers

The Treasurer will tomorrow reveal a dramatic fall in capital gains tax receipts will help drive a $20bn budget deficit next financial year on the heels of a $51 billion budget shortfall for 2010-11.

But, with the budget to focus on tackling regional Australia’s labour shortages with extra skilled migration and spending on skills training, he expects the nation’s books to roar back into the black as promised in 2012-13.

The immigration move and revenue figures, confirmed by The Australian yesterday, came as Mr Swan said the budget presented a once-in-a-career opportunity to “convert a mining boom into an opportunity boom” by attacking welfare dependence.

“The whole theme of everything I do is that we create prosperity to spread opportunity,” Mr Swan said in an exclusive interview with The Australian in Canberra yesterday.

The after-effects of the global financial crisis and the natural disasters over the summer have cut revenue by about $16bn over 2010-11 and 2011-12, with capital gains tax accounting for the bulk of the reduction.

While Mr Swan would not confirm specific figures, he said a further write-down of the coming financial year’s deficit, which Treasury’s last budget update put at $13bn, was inevitable. “If your growth drops significantly in 2010-11, that has 2011-12 implications,” he said, pointing out that the starting point for tax collections would be lower. With limited new money to spend, and facing large downgrades in revenue, the government is looking for initiatives to help achieve Labor’s national objectives, such as raising workforce participation, without incurring high costs.

One measure to be announced tomorrow will be a 60 per cent increase in skilled migrant intakes under the Regional Sponsored Migration Scheme, whereby employers can sponsor a skilled migrant on the condition they live and work in the area for at least two years. The budget is also expected to streamline the administration of the RSMS, allowing local authorities to tailor the scheme to suit their different labour needs. This year, about 10,000 migrants entered Australia on the scheme out of a skilled migrant intake of 113,850.

The RSMS intake will be increased by 6000, with the administrative shake-up expected to make the program more responsive to the needs of communities in mining areas of Western Australia and Queensland.

It will also help the government market an increase in the migrant intake in the face of strong negative campaigning by the Coalition on immigration.

Mr Swan said yesterday he remained confident the outlook for booming resources investment and exports remained intact, despite the sharp falls in world commodity markets last week, which stripped 15 per cent from the world oil price and 30 per cent from the price of silver.

“I don’t see anything that changes the basic picture that is driving the commodity cycle,” he said.

“Bear in mind it is at a real high now so it is no surprise if it comes off a bit,” he said, adding that the rapid growth in the Asia Pacific and the emerging economies would continue.

He said the budget would be based on terms of trade (export prices compared with import prices) at a higher level than Australia has ever experienced before.

Mr Swan said of the Reserve Bank’s forecasts that growth would slow to 2.5 per cent before rocketing ahead at 4.5 per cent in 2011-12: “They’re pretty bullish.”

However, Treasury’s forecasts are unlikely to be any more than half a percentage point lower. Mr Swan said the extent of the economic damage caused by the natural disasters had been widely under-estimated.

“There was a dramatic change from the end of last year through to the first part of this year caused by the biggest natural disasters in our history, and that has had a marked effect on growth and revenue,” he said. “It means that when growth returns, as it will, it will come back stronger.”

The biggest shock to the budget has been the fall in capital gains tax receipts, which may bring little more than $6bn this year, just a third of the peak level of $18bn generated in 2007-08.

Companies and individuals that realised losses during the global financial crisis can write them off against future profits and earnings. Neither the Australian Taxation Office nor Treasury knows how big the total losses are, but have been surprised by the size of the continuing writedowns.

The high value of the Australian dollar is also hurting profits, and as a result company tax revenue, from the non-mining sectors of the economy, while coal production has been slower to recover from the floods than expected because of the difficulty in clearing the mines of water.

The fall in capital gains tax receipts has been made worse by the slow recovery in wealth as house prices fall and the Australian sharemarket under-performs other world markets.

Mr Swan said consumers were likely to remain cautious for as long as the financial instability in Europe and the US remained in the headlines. “I think that is a large driver of it and it will take some time to disappear,” he said.

Mr Swan said that while the objective of returning the budget to surplus by 2012-13 was intended to reduce the government’s role in the economy as the resources boom gathers strength, he said it was also a prudential measure against any possible renewed global instability.

“It is prudent when economic conditions justify to get back into surplus and to build your surplus.”

He said the budget would be keeping to its rule of restricting spending growth to no more than 2 per cent after inflation, despite the rate of economic growth dropping this year below the long-term trend rate of about 3.5 per cent.

The big spending cuts to be announced in the budget will mainly be designed to free funds for some new spending initiatives. Mr Swan said the restraint needed to keep the budget’s overall spending growth to no more than 2 per cent had largely been achieved in the budget expenditure review committee by knocking back proposed spending increases, although there would also be a large number of small savings measures.

Mr Swan said he had no doubt some commentators would say the savings were not tough enough, however he said no other treasurer had ever achieved such a rapid reduction in the deficit as he was planning. He said the weakness in tax revenue meant there was no danger of the budget breaching the government’s rule that tax should not exceed 23.5 per cent of the economy, the level when Labor was elected in 2007

Article from The Australian, May 10, 2011.