Wednesday, October 27, 2010

Let's see. The lowest underlying inflation in five years... Swan's chirpy

Treasurer Wayne Swan has delivered an upbeat address to his Labor colleagues saying that if they thought the economy looked good during the election they should see it now.

The mid-year budget update due within weeks will lift the official forecasts for both growth and employment delivered in the pre-election update just three months ago.

The July 26 pre-election update predicted employment growth this financial year of 2.25 per cent. So far it is running at an annualised rate of 3.8 per cent. The pre-election update predicted economic growth of 3 per cent. The Treasury now believes that's on the low side.

In recent years mid-year update has been delivered on or around Melbourne Cup Day but significant revisions and the opportunity of announcing spending cuts in the update may delay its release.

Mr Swan told the Labor caucus that while the economic forecasts would be better it would not necessarily follow that the government's financial position would be better...

The high Australian dollar had the potential to dent the profits of trade-exposed businesses, cutting or changing the makeup of corporate tax collections.

He told the caucus, "Less profitable exporters mean less tax from companies, obviously when economic conditions change, that needs to be taken into account".

It is unclear whether the Treasurer was suggesting lower than expected government revenue in this financial year in future years. Changes in company revenue typically take a year or more to hit tax collections because of the backward looking nature of the tax system.

Mr Swan's comments follow calls from opposition finance spokesman Andrew Robb for the government to reassess spending and hold a mini-budget before Christmas.

While not referring to the regularly-scheduled update as a mini-budget, Mr Swan is believed to be considering announcing spending cuts in the statement to help fund the $2.4 billion of extra spending announced after the election to help win the support of independent and Green MPs.

He stressed he would keep the budget on track to get the back to surplus by 2012-13, well ahead of other major advanced economies.

He rejected dismissed suggestions that spending cuts were needed in order to conatain the high Australian dollar.

Published in today's Age

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