His warning comes as new figures show that private borrowing grew its fastest rate in 19 years in the year to December climbing 16.5 per cent - more than at any tine since the eve of the 1990’s recession.
Household credit grew by 11.8 per cent over the year; business credit by 24.3 per cent. In its commentary the ANZ bank said that business appeared “impervious to consistent interest rate hikes over the past few years and continued to increase levels of debt unabated"...
The Federal Reserve cut US interest rates by a further 0.5 per cent on Thursday morning Australian time, taking the total cut over the last week to 1.25 per cent in a bid to stabilise the US economy.
The Australian share market traded nervously closing up 0.56 per cent weighed down by news that the ratings agency Standard and Poor’s was considering downgrading a number of US banks and news that the Australian futures broker Tricom had been unable to settle its accounts when they fell due.
Australia’s Reserve Bank is expected to lift interest rates at its board meeting next Tuesday unless concern about the stability of the financial system or the US economy forces it to stay its hand.
Mr Tanner said yesterday that he expected to cop flak for his budget cuts, but they would be needed to stave off the prospect of still higher Australian interest rates.
So far he had only exploratory talks about the cuts but the real “hack work” was about to begin and with the hard decisions taken in February and March.
The achieve the government’s target of boosting the budget surplus to at least 1.5 per cent of GDP he would need to cut spending by $3 billion to $4 billion, perhaps more, on top of the cuts already announced.
“That’s a big task, we’ve set the bar high, and there will be pain,” he said.
“There inevitably will be pain when you cut spending but it is critical that we get inflation back in check. If we allow the inflation genie out of the bottle we will have a really major economic problem in this country.”
In Opposition Mr Tanner outlined $10 billion of budget cuts including a 2 per cent increase in the public service efficiency dividend that would take it from 1.25 per cent to 3.25 per cent for one year only.
Asked yesterday whether those cuts were the easy ones and the hard ones were to follow he replied that to some extent that was true.
“Inevitably there were things that we identified in opposition that were less politically painful than may have been”.
“But its also important to keep in mind that a major constraint in opposition is lack of information,” he said.
“We could only proceed with proposed spending cuts in opposition that we were absolutely certain and clear about. And in some cases we just did not have enough information to proceed.”
“By and large we are likely to be pushed towards areas that will be politically controversial, but that’s not automatically going to be the case.”
Mr Tanner confirmed last week that the $22 billion budget for the Department of Defence would be exempt from razor gang cuts saying that during the election he had made a commitment to maintain the totality of defence spending and he would honour that commitment.