Turnbull Backs IMF Call for More Aussie Infrastructure Spending

(Bloomberg) -- Australian Prime Minister Malcolm Turnbull agreed with the International Monetary Fund’s call for more spending on infrastructure, while recommitting his government to eradicating a budget deficit.

The IMF and Reserve Bank of Australia have urged the government to build roads, railways and ports that will boost productivity, increase hiring and stimulate the economy. Turnbull’s team has dragged its feet though as it seeks to shore up the budget and avoid the political albatross of losing the country’s prized AAA credit rating.

“We want to invest more in economic infrastructure and the IMF is right to point to that,” Turnbull said in an interview Tuesday with Bloomberg Television in Sydney. “It is a big driver of growth. A very, very important driver of growth.”

While the RBA and IMF agree day-to-day expenditure shouldn’t be financed by more debt, they say it remains justifiable to upgrade infrastructure by borrowing. The government projects the budget cash balance -- forecast to be a A$36.5 billion ($28.1 billion) deficit in the year through June 30 -- will return to balance in 2021.

“We are focused on bringing the budget back into balance,” Turnbull said. “That’s our goal. We have a plan to do that. We set that out in the budget last year and we took that to the election and we’re seeking the support of the Senate for all of our measures. But it is very important that we support investment, that’s why we’re bringing down company tax.”

Political Quandary

Turnbull’s quandary is political. Tax increases are unpalatable, and the lack of a majority in the upper house of parliament means he can’t get some spending cuts through. As a result, Australia’s path to surplus relies on growth and tinkering at the edges that could be easily blown off course.

This scenario is what prompted S&P Global Ratings to cut the outlook on Australia’s AAA sovereign grade to negative from stable in the first place, following a July election in which Turnbull secured a razor-thin majority in the lower house of parliament.

The government’s plan to reduce the company tax rate to 25 percent from 30 percent over 10 years has failed to garner sufficient support in the Senate, reflecting S&P’s concerns.

Turnbull is unperturbed and determined to pass what he says is a key reform.

“It sends a very important signal to investors because we know if you increase the return on investment by reducing business taxes you get more investment,” he said. “If you get more investment you get more jobs.”

Balance of Power

Turnbull is battling to gain momentum for his Liberal-National coalition, which is trailing in opinion polls. In the Senate, protectionist minor parties collectively hold the balance of power.

Among them is One Nation, led by anti-Muslim immigration firebrand Pauline Hanson. Her populist party won four upper-house seats in the last election and is looking to capitalize on its rising support in next month’s Western Australia state ballot.

In a sign of Hanson’s growing influence, some Liberal candidates in the state have agreed to favor One Nation over other parties in the nation’s preferential voting system -- meaning it could pick up extra support.

Turnbull defended the decision to direct preferences toward One Nation, saying it was a political calculation designed to maximize his party’s vote.

“Just because preferences are directed to a party doesn’t mean that you support them,” he said.

One Nation is opposed to increased foreign investment in state-owned assets and agricultural land, and is campaigning against the planned privatization of energy provider Western Power Corp. in Western Australia.

Turnbull said that while Australia was open for business, deals would be scrutinized to ensure they were in the national interest.

--With assistance from Jason Scott

To contact the reporters on this story: Michael Heath in Sydney at mheath1@bloomberg.net, Haidi Lun in Sydney at hlun1@bloomberg.net.

To contact the editors responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net, Edward Johnson

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