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Wayne SwanWAYNE Swan has conceded that his budget is under enormous pressure as floods in the Queensland coal fields subtract 0.4 per cent from growth in the December quarter.

The Treasurer said the full impact of the more extensive flooding in southeast Queensland and the effects of Cyclone Yasi would be felt in the March quarter.

“They will take a heavy toll on output and will take a heavy toll on our budget,” Mr Swan said, adding that company tax revenue would be likely to fall short of Treasury’s forecast of rapid growth.

National accounts released yesterday showed that a 0.7 per cent rise in growth in the final three months of last year lifted the year’s GDP by 2.7 per cent. Although in line with the Reserve Bank’s latest forecast, it is well below the economy’s long-term trend of 3.5 per cent and below the even faster growth that might be expected given the strength of Australia’s resource revenue.

“Housing activity and household spending are clearly much weaker than would be expected for an economy basking in the sunshine of the highest level of its terms of trade since the 1950s,” said Westpac chief economist Bill Evans.

Households saved almost 10c of every dollar they earned, a massive turnaround from the pre-financial crisis period, when as little as 1.5c in every dollar was being put aside. More than half the growth in household income since the financial crisis has gone into savings.

Spending on new housing fell by 1 per cent while lower turnover in the housing market resulted in a 9 per cent fall in real estate agent fees and other housing transfer costs. Partly due to weaker consumer spending, business profits have been depressed, despite the mining boom.

Excluding the banks, business profit rose by only 0.6 per cent in the December quarter following a flat result in the September quarter.

“Lower corporate profitability will probably mean lower company tax revenue,” Mr Swan said.

The mid-year budget update tipped rises of about 20 per cent in company tax revenue this year and in 2011-12.

Although the mining boom means that investment in new plant is growing strongly, rising 5.1 per cent in the quarter, other business spending remains soft.

Non-residential construction fell by 3.7 per cent in the quarter and is still 30 per cent below its level before the financial crisis.

The winding down of the Building the Education Revolution is also slowing the economy, subtracting 0.3 per cent from growth in the final quarter and about 1 per cent over the course of last year. Returns from the mining industry were hit by flooding in Queensland coal fields, with output down 3.7 per cent in the quarter.

Mr Swan said the floods would subtract a full percentage point from growth in the March quarter, while reconstruction activity would start providing a boost to the economy from the June quarter onwards.

The Treasurer has previously canvassed the possibility that the economy may contract in the March quarter.

He said that despite the recent headwinds, the continued upgrading of forecast commodity revenue would bring long-term gains to the budget and the economy.

Story by David Uren, Economics correspondent www.theaustralian.com.au

Tags: budget, economy, finance, floods, money, news, property

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