CANBERRA, Dec 5 (Reuters) - Australia's resources boom and
21-year run of economic growth have both slowed in the second
half of 2012, posing new challenges for the minority government
as it heads into an election year in 2013.
Prime Minister Julia Gillard holds a narrow one-seat
majority in parliament, relying on the Greens and a group of
independent lawmakers to remain in power.
The government could still fall if it loses one seat in the
event of an unexpected by-election.
RATINGS (Unchanged unless stated)
Following are the key political risks to watch:
The central bank has cut its growth forecasts for next year
to just under 2.75 percent from 3 percent, warning the upsurge
in the mining industry will peak earlier and at a lower level
than previously expected.
Australia's $1.4 trillion economy grew 0.5 percent in the
third quarter, or 3.1 percent for the year, but economists
expect growth to slow into 2013, possibly to levels nearer 2
percent. Unemployment remains at 5.4 percent, around half of the
rate in the eurozone.
At the same time, a strong local dollar, which has
traded near 30-year highs above parity with the U.S. dollar for
most of the past two years, plus rising costs and lower
commodity prices, are hampering investment in the resources
Latest data shows a record $280.5 billion in committed
investment into resources projects, although higher costs mask a
fall in the number of committed projects.
TAKE A LOOK - Australia's faltering resources boom
At its December board meeting, the central bank cut interest
rates by 25 points to 3.0 percent, matching its post-global
financial crisis low, to protect the economy from ongoing
WHAT TO WATCH:
- Any further falls in commodity prices could weaken
Australian export revenue, see more resources projects shelved,
and lead to job cuts in the resources sector.
- The world economy poses a downside risk with ongoing
worries about Europe and U.S. fiscal policy, and growth in Asia
dampened by slower Chinese growth and weakness in Europe.
Prime Minister Julia Gillard and her minority government
have survived a series of scandals throughout 2012, but managed
to push key reforms though parliament.
Gillard has slowly revived poll support for her Labor Party,
although Labor still trails the conservative opposition, and the
comeback appeared to stall over the closing months of 2012.
The respected Newspoll puts the government at 49 percent
support, compared with 51 percent for the opposition, giving
Labor lawmakers some hope that they could pull off a surprise
victory at the elections due around September 2013.
The Newspoll also shows Gillard has a considerable lead as
preferred prime minister over opposition leader Tony Abbott,
although both leaders are unpopular with voters.
Gillard ended the 2012 political year under a sustained
attack over her actions as a lawyer in 1992, when she advised
her then-boyfriend and union official Bruce Wilson over a union
slush fund, now at the centre of fraud claims.
Gillard has denied any wrongdoing, but the opposition has
demanded she resign and is promising to pursue the issue into
2013. Senior Labor ministers and party faction leaders have
stood by Gillard and her leadership.
What to watch:
- Any new revelation about Gillard's role in the union slush
fund, or any fresh political blunder, could severely damage her
leadership and force nervous government lawmakers to dump
Gillard in favour of a more popular leader, though there is only
minimal support for former prime minister Kevin Rudd.
- Any unexpected defection or retirement from parliament of
a government lawmaker could trigger a by-election in which
Gillard might lose control of a parliamentary majority. That
would likely trigger a full election which could see Labor swept
BUDGET, MINING TAX
Prime Minister Julia Gillard and Treasurer Wayne Swan are
politically committed to deliver a surplus budget for 2012-13,
despite slowing growth and lower commodity prices impacting on
tax revenues. The promise is key to countering perceptions among
many voters that Labor's economic stewardship has been poor
Further complicating the budget are projections for the
controversial 30 percent tax on iron ore and coal mine profits,
which began in July 2012. The mining tax is due to bring in A$2
billion ($2.10 billion) in the current financial year, but media
reports suggest the tax raised no revenue in the first quarter.
With a surplus forecast at only A$1.1 billion, any further
cut in mining profits, or economic slowdown, would force the
government to make further spending cuts ahead of the May budget
to shore up its economic credentials.
An independent tax review, released on Nov. 30, has also
urged Swan to close a loophole which allows states to increase
mining royalties and makes the national government refund the
cost to mining companies. That could re-ignite a bitter and
damaging public fight with miners BHP Billiton, Rio
Tinto, and Xstrata, who helped draft the
What to watch:
- Any move by the government to walk away from the promised
surplus for 2012-13, no matter how small, would be politically
damaging, and leave the government open to accusations that it
cannot control spending.
- Any move to protect revenues by changing the mining tax,
or by capping the royalty rebates to miners, could spark a new
row with global mining companies, similar to the national
campaign in 2010 which helped bring about the downfall of then
prime minister Kevin Rudd.
- Protecting the surplus with further spending cuts could
lead to public service job losses at a time when unemployment is
already ticking higher.
When she toppled Kevin Rudd to become prime minister in
mid-2010, Gillard promised to stop the steady stream of refugee
boats arriving via Indonesia, but the number of boats and asylum
seekers has continued to increase.
In August, the government revived the so-called "Pacific
solution" refugee policy, and has since re-opened immigration
detention centres in Nauru and Manus Island in Papua New Guinea
to counter an issue that divides voters.
Australia has also toughened the rules to ensure boat
arrivals could wait in detention for up to five years, with no
guarantee of settling in Australia even if their refugee claims
However, more than 3,000 people have arrived by boat since
the new policy was announced, and the government is under
intense political pressure over the issue, particularly in
crucial areas in suburban Sydney.
What to watch:
- More boat arrivals could further strain Australia's
immigration detention system and put more pressure on detention
centres on Nauru and Manus Island, which are still being
developed but which could be full by early 2013.
- Any more policy shifts could expose Australia to more
condemnation from rights groups and the United Nations High
Commission for Refugees, and fuel divisions within Gillard's
Labor government, as well as unsettle voters.
($1 = 0.9541 Australian dollars)
(Editing by Rob Taylor and Daniel Magnowski)