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'An honest start': Chris Richardson from Acce -

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'An honest start': Chris Richardson from Access Economics analyses the budget

Broadcast: 14/05/2008

Reporter: Tony Jones

Chris Richardson from Access Economics gives his assessment of the Budget handed down by Federal
Treasurer Wayne Swan.

Transcript

TONY JONES: So just how well has the Treasurer done managing Australia's boom prosperity?

For an assessment, we're joined now by Access Economics' Chris Richardson.

Now, Wayne Swan says this is the most complex policy making environment for Treasury in 20 years,
so have they got it right?

CHRIS RICHARDSON, ACCESS ECONOMICS: This is very, very difficult stuff. The budget papers say, and
it's quite right, the world is giving us the biggest pay rise in a generation. Coal and iron ore
prices jumping, that is classically the sort of combination where we get things wrong. Budget
making's an honest effort, starting to cut into spending, raising some taxes, maybe not the best
solution to slowing down inflation, but it is an honest start, whether it's enough remains to be
seen.

TONY JONES: The rhetoric says there's been $7 billion worth of spending cuts and savings, how do
you read it?

CHRIS RICHARDSON: About five of those $7 billion is actually being provided by China, giving us
more money, or, for that matter, simply changes to accounting treatment. It's really $2 billion of
Government savings, and a chunk of that is taxes rather than cutting into spending.

TONY JONES: $2 billion, I mean, that's $5 billion less than what we've been led to believe.

CHRIS RICHARDSON: Governments like to bump up the numbers, no matter who is in power. Same this
time round. It's an honest effort, it's better than I expected, but it is occurring in really
difficult economic circumstances, all the headlines are about US recession, market meltdown,
highest interest rates. The biggest thing happening to the Australian economy is none of those, it
is this jump in coal and iron ore revenue.

TONY JONES: You never liked the tax cults, you call them the "Harvey Norman tax cuts", because
that's where most of the money, well most of the much of the money, anyway, is going to be spent.
Are they going to be inflationary, or will the $2 billion worth of spending cuts and extra taxes
you identified, mitigate against that?

CHRIS RICHARDSON: Tax cuts are clearly inflationary and clearly dangerous in an economy that is
still at full stretch. Much of them will be spent. They were the centrepiece of the Budget, we knew
about them as long ago as last November, it's been the last couple of months of Government decision
making that's been running hard to undo the effect of those tax cuts. They made an effort. $2
billion worth of effort announced tonight, it's solid, better than I expected, it may not be enough
to ward off the inflation.

TONY JONES: We have two separate projections now on where inflation is going, one from the Reserve
Bank, less optimistic, and one from the Treasury, more optimistic. The Government seems to be going
with the Treasury's projection. Who is right?

CHRIS RICHARDSON: We don't know but I fear that inflation will be worse than Treasury hopes.
Remember, an absolute torrent of money is about to be dropped on Australia's economy. It's not just
the commodity boom's continuing, it is accelerating, and this is the biggest set of risks we've had
in this inflation challenge so far. The Budget helps, but whether it's helped enough, not clear.

TONY JONES: We've talked about this as being rivers of goal, this is a massive boost in the terms
of trade, have we seen anything like this?

CHRIS RICHARDSON: No, last time we saw anything close was the Korean War when wool prices shot
through the roof. My guess it, that in the last month, this commodity boom has passed that. We are
seeing something that no living Australian has seen before.

TONY JONES: Wayne Swan yesterday said that he's going to be nowhere near as lucky as the previous
government when it came to revenue upgrades. Has this put the lie to that?

CHRIS RICHARDSON: My guess is, that by the time this year is finished, the Government won't be
sitting on a $22 billion surplus, it will be bigger. It will also have an economy travelling
faster, more jobs, lower unemployment that they fear, but higher wages and prices, and perhaps,
higher interest rates too.

TONY JONES: Alright, very hard to manage. Thanks, Chris Richardson.