Australia bites budget bullet to get economy in shape

Australia is taking tough measures to get its economy back on course. Treasurer Paul Keating has handed down a budget that would reduce the federal deficit by slashing US$1.9 billion off spending on welfare, health, education, defense, and foreign aid and by boosting indirect taxation.

The budget was introduced in Parliament Tuesday as Prime Minister Robert Hawke warned Australians of a national ``crisis which is as great as the crisis of war.''

The nation's economic and political situation has deteriorated sharply over the 12 months since Mr. Keating introduced his last budget.

The Australian dollar, which the government decided to allow to float freely, has depreciated by about 15 percent against the United States dollar and more than 20 percent against the currency of its other major trading partners. That has caused an increase in the rate of inflation to more than 8 percent, a balance-of-payments crisis, and unusually high interest rates of up to 18 percent.

The Labor government's political popularity has plummeted. It now trails the opposition parties by three percentage points, according to opinion polls.

Keating's new budget is intended to restore both the economy and the government's popularity by the time of the next federal election, due in early 1988.

The most unexpected feature of the new budget was the overall deficit it predicts: US$2.2 billion, which is 1.4 percent of gross domestic product, and $1.4 billion less than last year's deficit. Market analysts were predicting a deficit of $2.5 billion or more.

To achieve the lower deficit figure, Keating cut welfare and health spending, increased charges for education, increased gasoline taxes, and deferred long-promised income tax cuts by three months. Unemployment is expected to rise slightly and economic growth to fall from a 4 percent rate last year to 2.5 percent.

To obtain the result he is predicting, Keating has to persuade the trade unions to accept a 2 percent discount on the next scheduled wage increases, with further cuts possible after that. Part of the government's recent ``war'' rhetoric, analysts say, has been directed at creating the atmosphere for that discount to occur.

The immediate response to the budget from economic and political commentators was favorable.

The influential Australian Financial Review described the budget as ``remarkable,'' and said it was ``economically responsible and politically honest.''

The Australian, a national daily, described the budget as tough but deserving of considerable praise.