Asia boom, US bust buffet Aust economy: Rudd

SYDNEY: Boom in Asia and bust in the US are buffeting Australia’s economy, prime minister Kevin Rudd warned yesterday as he outlined plans to rein in inflation.
In his first major speech on the economy since his Labor party swept John Howard’s conservatives out of office last November, Rudd pledged to slash government spending to produce a huge budget surplus.
The target would be a surplus of 1.5% of gross domestic product in the financial year to June 2009, he said – about A$18 billion (K47 billion).
At the same time, the government had vowed to honour election pledges for A$31 billion (K80.5 billion) in tax cuts.
Rudd told business leaders at a breakfast meeting in Perth that Australia faced “conflicting economic currents”.
These were: “A global economy (led by the US) which appears to be slowing. An on-going terms of trade boom driven by Asia Pacific economies. And significant domestic inflationary pressures at home.”
Accusing the outgoing government of having allowed these pressures to build, Rudd said his five-point plan included incentives to encourage private savings while tackling skills shortages and infrastructure bottlenecks.
Rudd, who described himself as a fiscal conservative during the election campaign, said producing the budget surplus – up from the 1% target of the previous government – would require discipline.
“That will require a determined, disciplined approach to spending and a hardline-approach to savings,” adding that his “razor gang” would cut wasteful spending.
Inflation was expected to exceed the Reserve Bank of Australia’s target range of 2% to 3% this year, raising the prospect of further interest rate rises by the central bank.
Rates were at an 11-year high of 6.75% after two 25 basis point increases last year, and the effect on mortgage-belt voters is believed to have played a part in the ouster of the previous government.
Rudd noted that the downturn in the economic outlook in the US, Europe and Japan comes as strong growth in the Asia-Pacific region was continuing to drive demand for Australia’s rich mineral and energy resources.
“Over coming years, developments in China would increasingly shape both global and Australian economic conditions,” he said. “The Indian economy had become one of our fastest growing export markets and was expected to continue to post impressive rates of economic growth.” – AAP