Government warns of tough budget, slower economic growth

Australians are being warned of slow economic growth in the future, with Federal Treasurer Wayne Swan saying the current wave of the resources boom will not be the same as the first, and continuing to flag an unpopular and tough budget next month.

“This will be a tough Budget for one reason and one reason only – it is what needs to be done for the economy and for the country,” Treasurer Wayne Swan will tell a Brisbane audience this afternoon.

“So we’ll be doing things in this Budget that won’t be popular, but they’ll be the right thing to do.”

There’s speculation that pathology funding, the private health rebate, the 50% childcare rebate and medical research funding will go under the knife in Labor’s fourth Budget. The Government has promised to return the Budget to surplus by 2012-13.

Swan says the eagerly awaited budget, to be delivered on mid-May, combines “short-term weakness, medium-term strength and boom conditions without the boom revenues.”

In prepared comments, Swan tips lower GDP growth as global commodity projects come online, and therefore reduce Government revenue. Swan says the so-called ‘rivers of gold’, under the Howard Government, will be absent in this Budget.

He also notes the effect of cautious consumers, the record high Australia dollar, mixed performances across different sectors of the economy, and the economic damage delivered by flooding in Queensland, Victoria and New South Wales.

The Treasurer says he “takes no joy” in making cuts, and will not be currying favour for political support.

“We can’t and shouldn’t buy support for this Budget, like our predecessors did,” Swan says.

“We take no joy in making these cuts to the Budget, but we take comfort from knowing they are the right and responsible thing to do for the economy,” Swan says.

“The easier alternative is to put it off for later but that means harsher cuts that hurt the people we resent even more.”

The comments follow a fairly bullish assessment on Australia’s resources boom from the Reserve Bank yesterday. The central bank, in the minutes of its April meeting, reiterates its forecast for large increases in investment and high terms of trade.

It also follows a weekend report that Swan will announce revised GDP growth forecast of just 2.25% at the Budget, well below the 3.25% figure given five months ago.

The downgraded figure, which represents a $13 billion fall in revenues, is driven by the natural disasters in Australia and Japan, as well as cautious consumer spending and lower company tax receipts.