Australia cuts budget surplus forecast

Australia's government slashed its forecast budget surplus by 75 percent, saying the slowest economic growth in eight years and fallout from the global financial crisis will erode tax revenue.

The cash surplus in the year to June 30, 2009, will be A$5.4 billion ($3.8 billion), compared with A$21.7 billion forecast in May, as revenue falls and the government gives cash handouts to families, pensioners and homebuyers, Treasurer Wayne Swan said in Canberra yesterday. The economy will grow 2 percent compared with a May prediction of 2.75 percent.

The central bank has cut the benchmark interest rate by 2 percentage points since September, the most aggressive round of reductions since the economy was in recession in 1991. Recent reports show house prices fell by the most since 1978, building approvals had the biggest drop in two years, the services industry shrank for a seventh month and retail sales contracted as Australia's 17 years of economic growth comes to an end. "The revisions are a little bit conservative given the magnitude of what we've seen happening in the markets," said David de Garis, senior markets economist at National Australia Bank Ltd in Sydney. "It looks to us that when it's all tallied, the government will be skating close to a deficit," its first since 2002. Still, unlike in the US, Australia does not plan to borrow to finance a fiscal stimulus package it has introduced to protect the economy in the face of the global market turmoil.