Govt is optimistic about growth prospects: minister
(SYDNEY) Australian Prime Minister Kevin Rudd said the government will go ahead with promised tax cuts, even as inflation rises at the fastest pace in 16 years.
‘There will be absolutely no change to people having tax cuts to take as additional income,’ Mr Rudd said on the Nine television network’s ‘Sunday’ programme. He said inflation remains the government’s greatest challenge.
Australia’s annual core inflation accelerated to 3.8 per cent in the fourth quarter, the fastest since 1991. The central bank aims to keep price gains between 2 per cent and 3 per cent on average.
Treasurer Wayne Swan said he remained optimistic about the outlook for the Australian economy amid the highest borrowing costs in 11 years and concern the United States is headed for recession.
‘We do face substantial challenges but I think our growth prospects are very solid,’ Mr Swan said yesterday on channel Ten’s ‘Meet the Press’ programme. ‘It’s a very big inflation problem. We have to deal with it because inflation pushes up interest rates, erodes living standards and, in the end, inflation is a threat to growth.’
The economy is showing few signs of cooling as rising consumer spending and exports to China help Australia ride out a global financial market slump. It grew 4.3 per cent in the third quarter from a year earlier, the fastest pace in three years.
The Reserve Bank of Australia last week increased the overnight cash rate target to an 11-year high of 7 per cent.
A US recession would probably curb global economic growth, cooling demand for Australia’s exports. Increased borrowing costs, rising living costs and declining share prices may also damp consumer spending in coming months.
Mr Swan said measures allowing customers to more easily switch banks will bolster competition in the sector and help keep borrowing costs lower. Cuts to public spending will also curb inflation.
‘We have to really take the axe to public spending given the inflation problem that we’ve inherited,’ he said. ‘And that will mean that we will go through the budget looking at all areas of the budget to make the savings that are absolutely essential if we’re going to put downward pressure on inflation and downward pressure on interest rates.’
Source: Bloomberg (Business Times 11 Feb 08)