Australia's Costello sees budget in surplus

Australia's Costello sees budget in surplus

Australian Treasurer Peter Costello said on Monday he expected a four-year run of budget surpluses to continue in the coming year.

"We want to continue to keep the budget in the black and to fund all the important expenditures out of the existing revenue base...that is our strategy in the coming budget," Costello told reporters.

Costello, speaking on the sidelines of International Monetary Fund and World Bank spring meetings here, would not be drawn on the prospects for further tax cuts after last year's package which was worth more than 2 percent of GDP.

"I have said on the record a thousand times I think lower income taxes are always better, but bear this in mind, we are still digesting the largest income tax cuts in Australian history which are very significant by world standards," the finance minister said.

A series of government policy reversals cutting petrol taxes and boosting grants for first-time home buyers, combined with a downturn in economic growth, is expected to slash the budget bottom line, forecast at a surplus of A$3.2 billion for 2001/02 (July-June).

Costello, who welcomed aggressive U.S. interest rate cuts this year as good for the global economy, declined to comment on the prospects for further monetary easing in Australia.

"We've got restraint in relation to prices and that has given us the opportunity to reduce interest rates during the course of this year and that will be good for the economy," he said.

The Reserve Bank of Australia (RBA) cut official interest rates on April 4 for the third month in a row, taking the cash rate to 5.0 percent from 5.5 percent. It has lowered rates by 1.25 percentage points so far this year.

Analysts polled by Reuters say a rate cut at the next RBA meeting in May will be a close call, with some stronger than expected economic data - including a rise in core and underlying inflation - arguing against more easing.


Costello said inflation was contained within a band of 2 to 3 percent and should stay there. He dismissed the effect of one-off blips in indicators and blamed floods for a jump in fruit and vegetable prices that caused for a rise in last month's numbers.

Most of the 24 analysts surveyed believe if the RBA does not cut in May, it will move in June.

Costello said he also held talks this weekend with officials on a free trade agreement proposed between the United States and Australia.

"There have been encouraging responses from the (Bush) administration, though obviously it's going to take time," said Costello, adding that he was pleased trade liberalization had featured prominently on the World Bank and IMF agendas.

He said liberalizing trade in agriculture and cutting subsidies would help further the ambitions of the fund and the bank to reduce poverty in the world's poorest nations.

"Agricultural subsidies, to a large degree, are working against developing countries. These are subsidies to keep them out of developed countries' markets," Costello said.

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