Swan firm on company tax cut, tips 4.5% unemployment rate as budget speculation continues

The mixed messages coming from the Federal Government has continued in the lead up to the Federal Budget, with Federal Treasurer Wayne Swan reaffirming his commitment to cutting the company tax rate, despite hits to revenue and predictions of slower growth, and forecasting a fall in the unemployment rate to 4.5% as the resources sector continues to boom.

Swan says the May 10 budget will forecast 500,000 new jobs to be created over the next two years, and emphasises the Government’s desire to increase productivity and keep people in the workforce longer.

Australia’s unemployment rate has been on a downward trend, and currently sits at 4.9%. Swan told Network Ten at the weekend that with unemployment heading down towards at 4.5%, Australia “does not have a person to waste”.

Swan also says that he has not even contemplated going back on a promise to cut the company tax rate to 29% from 30% by the 2013-2014 financial year, despite opposition from the Greens.

“In some ways, it is just as important as it ever was, particularly for those who are not in the resources fast lane,” Swan told the Australian Financial Review.

His comments follow warnings that the natural disasters on the eastern seaboard, and reduced company taxes, have eaten into Government tax revenues.

The Government has promised a tough budget, mindful it previously promised to return the budget to surplus in the 2012-13 financial year.

But the rise of the Australian dollar, which is nearing 110 US cents, could give the Government an excuse to scrap its surplus commitment.

The local currency has cut into profits of other sectors in the economy, with the key retail and education industries hit hard.

There are suggestions the Government’s fiscal deficit could exceed the $41.5 billion forecast in November, and gross domestic product growth will fall to 2.25%, from 3.25%.

This morning The Australian reported that the budget will include Treasury forecasts showing inflation will reach 3.25% over the next couple of years, exceeding the central bank’s 2-3% inflation target.

However, the RBA is expected to keep the official cash rate on hold at 4.75% when it meets tomorrow.

In an editorial piece for The Australian newspaper today, Swan says the Budget needs to be considered in total.

“That’s what’s important; a cool-headed assessment of how we best create prosperity and spread opportunity to more corners of our patchwork economy,” he writes.