Spending cuts ‘at odds with RBA cut’

The government’s plan to cut spending to bring the commonwealth budget back to surplus in 2012/13 is at odds with the central bank’s recent interest rate cut, an economic forecaster says.


Treasurer Wayne Swan will release the government’s mid-year review of its budget at 1100 AEDT today.

Mr Swan is expected to announce the deficit for the current financial year to blow out to more than $30 billion from $22.6 billion forecast six months ago due to lower taxation revenue and higher than expected spending on the flood and disaster reconstruction.

He is also set to announce revenue has been lowered by $20 billion over the four-year estimates.

But the treasurer is expected to announce a budget surplus in 2012/13 through cuts to government spending.

Deloitte Access Economics director Chris Richardson said the government planned to cut spending when the Reserve Bank of Australia (RBA) had cut its cash rate in early November.

The RBA cut the cash rate from 4.75 per cent to 4.5 per cent to provide some stimulus for a slowing economy.

“What the government is doing here is actually taking money back out again solely to get a surplus next year,” Mr Richardson told ABC Radio on Tuesday.

“It is not clear that it is smart to have the Reserve Bank tipping money but the government then taking it back out when the outlook especially with Europe is somewhat fraught.”


On Monday, the Organisation for Economic Cooperation and Development (OECD) released its half-yearly growth forecasts.

The Paris-based institution downgraded Australia’s economic growth for calendar 2011 from 2.9 per cent to 1.8 per cent.

Mr Richardson said the government’s commitment to return to the budget to surplus could be hit if the crisis in Europe deteriorates.

“If next week Europe blows up, we would have to throw up a sudden U-turn in Australia’s budget.”