/www.bloomberg.com/ By Victoria Batchelor
Canberra, Nov. 27 (Bloomberg) -- Australia unexpectedly maintained its forecast budget surplus at A$2.1 billion ($1 billion) for the year ending June 30, 2003 as it reaps more in company and sales taxes, and pays less in unemployment benefits.
The government will delay the planned sale of its remaining stake in Telstra Corp., the nation's largest phone company, until at least the year beginning July 1, 2004, Treasurer Peter Costello also announced in the government's mid-year economic update.
The stronger-than-expected surplus comes as drought grips one- third of the nation and the government spends more on defense and security after a terrorist bomb in Bali last month killed Australians. A lower jobless rate, rising consumer spending and a pickup in business investment is supporting the economy, underpinning the budget surplus, the government said.
``Our fiscal position is strong and the government has been able to meet a couple of crises both in Bali and the drought,'' Costello told reporters.
``There are, however, substantial risks around the outlook,'' Costello said. ``A weaker outcome is possible if the dry conditions persist or if global economic conditions continue to deteriorate.''
The government was expected cut its surplus forecast for the current fiscal year to A$1 billion, according to the median forecast in a Bloomberg News survey of 15 economists. The government reported a A$1.3 billion deficit in the previous fiscal year, the first shortfall in five years.
The government lowered its economic growth forecast for the current year because of the drought. It now expects the economy to expand 3 percent in the year ending June 30, 2003, from the 3.75 percent rate it forecast in May's budget.
A worsening drought is eroding farm production and slowing economic growth. The drought, which has slashed the nation's grain and cotton crops, may cost the world's biggest wool and beef exporter A$5.4 billion this year, according to the government's commodity forecaster.
At the same time, slowing economic growth in Australia's biggest export markets, Japan and the U.S., has lowered commodity prices, reducing export earnings.
Growth Rebound
Still, the government predicts growth will rebound to 4 percent in fiscal 2004 as global growth recovers.
The government increased its budget surplus forecast for the year to June 30, 2004, to A$4.9 billion from the A$3.7 billion it forecast in May.
Bonds trimmed an earlier gain after the report. The yield on the 6.5 percent bond maturing May 2013 was at 5.53 percent at 1:40 p.m. in Sydney from 5.52 percent immediately before the report.
``It's a positive surprise that the fiscal position is strong,'' said Stephen Halmarick, co-head of economic and market analysis at Salomon Smith Barney. ``The economy is still holding up -- that's negative for bonds.''
The government said an increase in company tax had made up for a fall in income tax from wage earners. As well, it will spend A$150 million less-than-expected on unemployment benefits because the labor market is stronger than it predicted.
Telstra Sale Delayed
Meantime, the sale of the government's remaining 50.1 percent stake in Telstra has been delayed by at least a year as the share price sinks to a four-year low. The planned sale was initially slated for the year beginning July 1, 2003.
The government's stake is now valued at A$28.7 billion, which is A$6.4 billion less than at the start of the year. The shares traded at A$4.44 at 1:35 Sydney time after yesterday closing at A$4.38, the lowest since Oct. 15, 1998.
Costello said the government had to ensure concerns about improving rural and regional phone services are met, as well as winning parliamentary approval for the sale. The sale ``will not take place before 2004/05,'' Costello said.
``The price estimate has been revised down,'' Costello said, declining to say how much the government expected for the stake.
The sale of Telstra is opposed by the Labor Party, the Democrat Party and independent politicians who hold the deciding votes in the Upper House of parliament, or Senate.
Telstra controls three-quarters of Australia's A$31 billion a year telecommunications market.