Banking on China for a surplus
Treasurer Wayne Swan's razor-thin budget surplus is a hostage to the continued resource demand out of Asia, led by Australia's most important trading partner - China.
Treasury predicts that the Australian economy will grow at 3.25 per cent for the next financial year, but that growth engine will be running on two cylinders only - the surging resources industry and modest household consumption. Tight government spending and the weak house building sector are expected to contribute almost nothing to GDP growth.
The Government's budget papers make it clear that Australia's economic fortune is firmly tied to Asian demand for resources.
"Strong demand from Asia is expected to continue to support historically-high commodity prices, drive record levels of investment in resources and resources-related projects in Australia and underpin solid growth in export volumes," the budget paper said.
Business investment, and particularly in the resources sector, will be the single most important contributor to Australia's economic growth in the coming years.
Indeed resources investment is expected to reach nearly one-tenth of the nation's GDP in 2013-14.
Mining companies are expected to pump a record $120 billion into the sector in 2012-13 from an expected $95 billion in the current financial year. However, the rest of economy is expected to be weighed down by the high Australian dollar and subdued consumer sentiment.
Exports are forecast to grow at 4.5 per cent for the next two years. The Treasury expects strong growth in Asia, especially in China, will continue to support strong demand for two of Australia's largest export earners - iron ore and coal.
Chinese and Indian tourists are also expected to bring in rivers of gold for tourism exporters. Chinese tourists in Australia have tripled within the last ten years from 160,000 in 2001 to 560,000 in 2011.
Though the Treasury predicts a gradual decline in Australia's historic-high terms of trade in the near term, it is nevertheless bullish on the continued strong demand.
"Despite the forecast decline in prices, the terms of trade are expected to remain close to historical highs over the forecast period."
Many commentators including leading economist Ross Garnaut have recently warned on Australia's over-reliance on the commodities export and its dire consquences.
Elsewhere, the government will provide more than $50 million in funding to expand Australia's diplomatic footprints in Asia and Africa. New posts will be created in China and Senegal to support trade, investment and diplomacy.