Monday, November 02, 2009

We're "something special" - Swan

Dramatically improved Treasury forecasts released ahead of today's expected Melbourne Cup day rate hike have the Australian economy growing faster sooner, unemployment climbing a mere fraction of what was expected and government debt peaking way below the Budget forecast.

The mid-year budget update unveiled by Treasurer Wayne Swan has the economy expanding 1.5 per cent this financial year instead of contracting 0.5 per cent, unemployment topping out at 6.75 per cent instead of 8.5 per cent, and government debt reaching $153 billion instead of the $203 billion forecast in the Budget and the differently-calculated $315 billion emblazoned by the Coalition on its so-called debt truck.

The lower unemployment projection means some 200,000 fewer Australians will be forced into unemployment than had been expected, an achievement the Treasurer hailed as "something special"...

"We have avoided the destruction of our capital and our skills base that is usually accompanied by a sharp recession," he told a Canberra press conference. "That is something that all Australians can be proud of because it's something that we have done together."

The upgraded forecasts will strengthen the resolve of the Reserve Bank board to lift interest rates when it meets this morning with an announcement of the second consecutive 0.25 percentage point hike expected at 2.30 pm.

Strengthening the hand of those on the board who want an even bigger hike will be other official figures released yesterday confirming that house prices have regained everything they lost during during the downturn and are climbing into new territory.

Conceding stimulus measures had had a "greater than expected impact on confidence" Mr Swan rejected claims that his initial forecasts on budget night had been too pesmisstic saying "it was a savage criticism made of the Government that night and through subsequent days that everything we put forward was too optimistic".

"We are doing our level best to try and get the balance right here, because we are still dealing with a difficult situation globally, and if you go out there on the ground and talk to people who are running small businesses and so on, they’re not declaring victory. The really good thing is that no one ever thought we would be in this space. We have avoided a sharp recession."

Burried within the revised estimates is news of a $2 billion blowout in government spending, around half due to greater than expected spending on the home insulation program and $620 million due to bigger than expected spending on the Education Revolution program to reequip primary schools.

Education Minister Julia Gillard announced what she called a "rephasing" of that spending, with $500 million postponed from 2010-11 to 2011-12 to allow extra time to achieve "greater value for money" and $200 million deferred indefinitely.

Shadow Minister Christopher Pyne said the change all but conceded the program was "beset by waste, mismanagement and profiteering".

Shadow Treasurer Joe Hockey said the spending blowout would push up interest rates.

"They are maintaining recession levels of spending without in any way having a recession," he said. "In doing so they are putting pressure on rates."

Published in today's Age

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