AUSTRALIA 
Budget 'tough as all hell'
Tuesday, 29 April, 2008
Mr Rudd says the budget will be aimed at assisting working families. (AAP)
Prime Minister Kevin Rudd says bringing the budget together is "tough as all hell", but economists say the government will soon be wallowing in billions of extra dollars from the mining boom.
Economists estimate increased contract prices for coal and iron ore could rake in an additional $10 to $12 billion from company tax receipts, suggesting the government will easily surpass its target surplus in next month's budget.
The government has promised to produce a budget surplus equivalent to at least 1.5 per cent of gross domestic product (GDP) as a result of tough spending cuts to help the Reserve Bank of
Australia rein in inflation.
Mr Rudd told journalists in Canberra that the budget process is going as "tough as all hell" and the budget will be aimed at assisting working families.
"We believe working families are under financial pressure, not least from recent increases in mortgage payments, but also what's happened to petrol prices and what's happened to grocery prices,"
Mr Rudd said.
But not wanting to inflame current inflation pressures, the government will not be throwing money at households.
UBS Australia chief economist Scott Haslem says the tough decisions being taken by government are just as much about how to spend a "truckload of cash" to end up with a budget surplus that is politically palatable and not too large.
He calculates that before any new policies are announced, the government will be sitting on a massive budget starting point surplus of $32 billion or 2.75 per cent of GDP for 2008/09, even with an anticipated slowdown in domestic demand and announced tax cuts.
However, he expects Treasurer Wayne Swan will deliver a surplus more like two per cent of GDP or $22 billion after significant spending on infrastructure and education, and possibly superannuation - difficult to criticise politically and less inflationary than giving money to consumers.
This compares with $14.3 billion estimated in the Pre-election Economic and Fiscal Outlook (PEFO) released last October.
Mr Haslem said he conservatively estimated the latest increases in bulk commodity prices would bring in an extra $10 billion.
"The issue there is to whether they are going to fully recognise that (increase in commodity prices)," Mr Haslem told AAP.
"At the end of the day they can tell us what they want.
“They can shove some money in the contingency reserve, they can cut the growth numbers more than I think they will, they can say the implications of slower growth are more significant on the budget numbers than I factored in."
He expects the 2008/09 GDP growth forecast will be cut to 3.0 per cent from 3.5 per cent as in the PEFO.
Mr Swan said the budget had to strike the right balance between the need to fight inflation and the slowdown in world growth.
He told Fairfax newspapers the IMF-World Bank meetings he attended in Washington this month had made him "even more acutely" aware of the risks international economic woes posed to the Australian economy.
Opposition treasury spokesman Malcolm Turnbull said the government's approach to economic management should be cautious but not over the top.
"We shouldn't be rushing into measures, be they monetary or fiscal, that could, in effect, overdo the downward pressure on economic activity that's coming from the rest of the world," he told ABC radio.
"The treasurer's got to be very careful not to be too scrooge-like with the federal budget."
Source: AAP
Economists estimate increased contract prices for coal and iron ore could rake in an additional $10 to $12 billion from company tax receipts, suggesting the government will easily surpass its target surplus in next month's budget.
The government has promised to produce a budget surplus equivalent to at least 1.5 per cent of gross domestic product (GDP) as a result of tough spending cuts to help the Reserve Bank of
Australia rein in inflation.
Mr Rudd told journalists in Canberra that the budget process is going as "tough as all hell" and the budget will be aimed at assisting working families.
"We believe working families are under financial pressure, not least from recent increases in mortgage payments, but also what's happened to petrol prices and what's happened to grocery prices,"
Mr Rudd said.
But not wanting to inflame current inflation pressures, the government will not be throwing money at households.
UBS Australia chief economist Scott Haslem says the tough decisions being taken by government are just as much about how to spend a "truckload of cash" to end up with a budget surplus that is politically palatable and not too large.
He calculates that before any new policies are announced, the government will be sitting on a massive budget starting point surplus of $32 billion or 2.75 per cent of GDP for 2008/09, even with an anticipated slowdown in domestic demand and announced tax cuts.
However, he expects Treasurer Wayne Swan will deliver a surplus more like two per cent of GDP or $22 billion after significant spending on infrastructure and education, and possibly superannuation - difficult to criticise politically and less inflationary than giving money to consumers.
This compares with $14.3 billion estimated in the Pre-election Economic and Fiscal Outlook (PEFO) released last October.
Mr Haslem said he conservatively estimated the latest increases in bulk commodity prices would bring in an extra $10 billion.
"The issue there is to whether they are going to fully recognise that (increase in commodity prices)," Mr Haslem told AAP.
"At the end of the day they can tell us what they want.
“They can shove some money in the contingency reserve, they can cut the growth numbers more than I think they will, they can say the implications of slower growth are more significant on the budget numbers than I factored in."
He expects the 2008/09 GDP growth forecast will be cut to 3.0 per cent from 3.5 per cent as in the PEFO.
Mr Swan said the budget had to strike the right balance between the need to fight inflation and the slowdown in world growth.
He told Fairfax newspapers the IMF-World Bank meetings he attended in Washington this month had made him "even more acutely" aware of the risks international economic woes posed to the Australian economy.
Opposition treasury spokesman Malcolm Turnbull said the government's approach to economic management should be cautious but not over the top.
"We shouldn't be rushing into measures, be they monetary or fiscal, that could, in effect, overdo the downward pressure on economic activity that's coming from the rest of the world," he told ABC radio.
"The treasurer's got to be very careful not to be too scrooge-like with the federal budget."
Source: AAP
