TONY EASTLEY: The Government's spending in the run up to the election is unsustainable according to economic analyst, Access Economics.
As well it says all the promises by the Government and Labor Opposition may well mean that they have to raise taxes or cut services to fund their programs and keep the budget in surplus. It also says it will put interest rates under pressure.
Access Economics' David Rumbens spoke a short time ago to Chief Political Correspondent, Catherine McGrath.
DAVID RUMBENS: Well, we have seen very strong spending in this budget. On the Government's projections there are modest surpluses in the years ahead but those projections are based on very strong revenue growth, particularly from company profits.
Now, company profits do tend to go on a bit of a cycle and are at a high point at the moment. The risk is that if that cycle continues and we move to a low point then the Government really won't be getting the company revenues that it expects and that may put the budget surpluses at risk.
CATHERINE MCGRATH: So what are you suggesting, that there will have to be budget cuts in future or tax rises?
DAVID RUMBENS: If future governments want to maintain surpluses that's very likely to be the case.
CATHERINE MCGRATH: Now, in your report you've described the Government's spending, in the run up to the election as showing "all the restraint of meatloaf at McDonalds". That's a bit tough isn't it?
DAVID RUMBENS: Well, it's colourful language I guess, but there certainly has been a lot of spending. I mean, we are looking at between the budget and June 2005 some $12.5 billion being given back to consumers in the form of tax cuts and various benefits. That's pretty significant.
CATHERINE MCGRATH: So you're saying it is unsustainable?
DAVID RUMBENS: The projections in the budget are based on pretty strong revenue growth and if that's not achieved then some other action will have to occur. As, you know, quite often tends to happen in pre-election versus post-election budgets, we have the spending pre-election and have the first post-election budget as a tough one.
CATHERINE MCGRATH: Now, in the current estimates, in this financial year, the Government is predicting a surplus of $2.4 billion. Now, Treasurer Peter Costello won't comment this morning. He says that he can't comment on this sort of private research because over the economic cycle Treasury's predictions have been far more accurate.
DAVID RUMBENS: Well, I'm not sure about that actually. Our own analysis of it shows that while it is true that the projections do… can change over the cycle, but ours are quite often closer to the mark than Treasury's.
The report that we're putting out today, is one for the… is an outlook for the whole economy so we haven't actually done another projection of the cash balance for the Federal Budget.
Just part of our economic outlook, we are pointing to risk that stem from the Federal Budget, from the additional spending that's come from it and the risk that that may pose to budgets down the track.
CATHERINE MCGRATH: Now, the spending that you highlight, 4.3 billion in the run-up to the end of the financial year, at 8.3 billion in the current financial year, what do you predict those spending amounts will have on to interest rates?
DAVID RUMBENS: Well, they will certainly put upwards pressure on interest rates. Certainly the additional spending is going to, other things equal, it's going to add to inflationary pressure and that will put some upward pressure on interest rates.
And we may see that come through in the first half of next year through a rise of a quarter of a per cent or perhaps up to half a per cent.
TONY EASTLEY: David Rumbens from Access Economics speaking with our Chief Political Correspondent Catherine McGrath.
