Budget will lock economy into 'fiscal straitjacket'

Wayne Swan says the Budget to be delivered today is part of an effort to build a post-financial crisis economy. Photo / Mark Mitchell

Australian Treasurer Wayne Swan will tonight unveil a Budget he says will strap the economy into a fiscal straitjacket, resisting the temptation to buy votes for this year's election.

With the Government going into freefall in the opinion polls and a firestorm enveloping the leadership of Prime Minister Kevin Rudd, Swan will cap spending growth at 2 per cent after inflation, and pay for new outlays with savings elsewhere.

His aim will be to present Labor as a sound economic manager determined to lock in Australia's survival through the global financial crisis with an extended balance of austerity, tax measures and reforms.

"We're concentrating on the long term," Swan told ABC radio yesterday.

"There will be a shift in focus from fending off recession to building a post-crisis economy that gets on with delivering that essential productivity agenda that we need for sustainable growth."

Surveys by the National Australia Bank and the ANZ Bank yesterday indicated that interest rate cuts have started to turn down the heat on the economy, reflected in falling sales, declining business confidence, and slowing jobs growth.

But new forecasts from the Reserve Bank point to growth in the global economy despite problems spreading from Greece to other European countries, with optimism in the key resource markets of Asia.

The bank predicted Australian GDP growth of about 3.5 per cent in 2010-11 and 3.75 per cent in 2011-12.

Westpac said the Budget could return to surplus in 2013-14 - two years earlier than expected.

The most recent policy decisions, involving a 40 per cent "super-tax" on miners, increasing compulsory employers' superannuation contributions from 9 per cent to 12 per cent and phased reductions in company tax to 28 per cent, will be not be included in the budget for the coming 12 months.

But there will be the third tranche of previously-promised personal tax cuts, including an increase in the tax-free threshold for people earning under A$30,000 to A$16,000, an increase from A$35,000 to A$37,000 in the 15 per cent threshold, and a 1c reduction, to 37c, in the tax rate for earnings between A$80,000 and A$180,000.

Revenue will gain from a A$5 billion lift in tobacco excise, about A$2.7 billion from putting greenhouse emissions trading on ice, A$1 billion from ending the flawed home insulation programme, and A$160 million from new federal Government travel spending arrangements.

The Budget will confirm a key emphasis on health, including savings to find A$5.3 billion of incentives for the states to join a new national hospital and primary care package, and A$2 billion to provide GPs with nurses for their practices and other measures.

The cost of prescription drugs is also expected to fall.

Swan is also expected to announce a big increase in spending for national security - and plans to develop Australia as a global financial centre.