horror budget or horror interest rates

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Friday May 9, 09:01 AM
Horror Budget or horror interest rates: analyst

A leading economic forecaster says Treasurer Wayne Swan will have to deliver a horror Budget on Tuesday - or Australians can expect horror interest rates.


"There has to be bad news. People do not understand when times are good you still need to take tough decisions," Access Economics director Chris Richardson said.


"In fact the risk is that this Budget does not take enough of the tough decisions."


Mr Richardson says spending cuts of $3 billion in the coming financial year alone will be enough to ward off a 0.25 per cent rate hike.


"It's about $3 billion of spending savings in the year just about to start - 2008/09 - if you want to ward off the next interest rate of a quarter of a percentage point.


"It can ward off short-term interest rate rises, it can bring about an earlier return to lower interest rates in Australia, but it does take quite a lot of expenditure cuts."


Mr Richardson is also predicting a cash surplus in excess of $20 billion, thanks to the mining boom and promised spending cuts.


"About a week ago, the Government was looking at a $20 billion cash surplus, it may have improved since then," he said.


Mr Richardson says the Government's surplus target of 1.5 per cent of gross domestic product (GDP) will easily be achieved.


He says on top of the bumper surplus, Mr Swan can also afford to put some extra money aside into a scheme similar to the future fund.