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Banks take hit as Australia pumps billions in new projects

Construction workers on the site of a new light railway system being built in Sydney on May 9, 2017/AFP

SYDNEY, Australia, May 9 – Australia pledged billions of dollars in infrastructure spending and new measures to tackle housing affordability in handing down its budget Tuesday, with levies on banks and foreign workers to help pay for it.

Treasurer Scott Morrison, juggling waning support for his government with the need to demonstrate fiscal responsibility to keep Australia’s coveted AAA credit rating, called his decisions “fair and responsible”.

“This budget is about making the right choices to secure the better days ahead,” he said, in sticking to his promise to return a surplus by 2020-21 from a projected 2017-18 deficit of Aus$29.4 billion (US$21.6 billion).

“It sets out a credible and affordable plan, based on the principles of fairness, security and opportunity. Above all this is an honest budget.”

Pumping money into infrastructure projects to create jobs and guarantee essential services was a key thrust of the budget, with the government earmarking Aus$5.3 billion to bankroll the construction of a second airport in Sydney to be ready by 2026.

It also announced Aus$8.4 billion for an inland freight rail line connecting Melbourne and Brisbane, along with billions more for other road and rail projects.

Defence spending was hiked six percent to Aus$34 billion while there was more money for police to help counter growing security threats, and a boost in investment for education.

A hot topic in the lead up to the budget was an overheating property market, fuelled by interest rates slashed to record lows to boost growth as the economy shifts from a dependence on mining-driven expansion.

While Australia is one of the best-performing developed global economies, soaring house prices, coupled with low wage growth, has also made it a world-beater in household debt.

‘No silver bullets’

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Morrison said new land would be made available for affordable homes and tax cuts introduced on first home deposit savings.

He also tightened rules for foreign investors, with an annual Aus$5,000 fine if they fail to either occupy or lease their property for at least six months each year.

The government also restored a regulation that prevents developers selling more than 50 percent of new projects to anyone who does not live in Australia.

“There are no silver bullets to make housing more affordable. But by adopting a comprehensive approach, by working together, by understanding the spectrum of housing needs, we can make a difference,” he said.

The government will partly fund its spending by slugging the country’s five most profitable banks with Aus$6.2 billion in extra fees on their liabilities over four years, with rumours of the new levy sending bank shares tumbling on Tuesday.

“This represents an additional and fair contribution from our major banks, is similar to measures imposed in other advanced countries, and will even up the playing field for smaller banks,” said Morrison.

Cash will be also raised by new levies on foreign workers, with employers having to pay up to Aus$1,800 annually for those on temporary work visas and up to a Aus$5,000 one-off fee for those on permanent skilled visas.

While the government had a keen eye on the electorate, with the popularity of Prime Minister Malcolm Turnbull waning, it was also wary of a possible cut to its coveted AAA rating.

Rating agencies have warned it could be lowered if the government does not improve its budget balances and deliver on the surplus plans.

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Morrison said the budget was projected to return to a balance of Aus$7.4 billion in 2020–21 “and remain in surplus over the medium term”.

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