PRIME Minister Julia Gillard says it is right to bring the budget back to surplus when the economy is growing at a rate that leaders around the world would “cheerfully chew their right arms off” to have.
Ms Gillard said the latest economic forecasts produced by the International Monetary Fund (IMF) show the Australian economy is a “world beater”, outperforming all of the major advanced economies.
The Washington-based institution made a modest upgrade to its world growth forecast on Tuesday (AEST) to 3.5 per cent in 2012, from 3.3 per cent previously, as the threat of a sharp global economic slowdown recedes and activity in the United States rises.
However, it forecasts 2012 growth of only 2.1 per cent in the US, 2.0 per cent in Japan, a mere 0.8 per cent in the UK and even a 0.3 per cent contraction in the euro area, whereas Australia will grow at 3.0 per cent.
“I go to a lot of international meetings, and let me tell you, the leaders I sit down with would cheerfully chew their right arms off to have the macroeconomic signs that we have in this country,” Ms Gillard told reporters in Perth on Wednesday.
“It’s the right thing in this economy to bring our budget to surplus, to give us a buffer for the future in case the uncertain global economy takes a downward turn.”
She said it would also give the Reserve Bank of Australia (RBA) the “maximum room” to move on interest rates should it choose to do so.
Financial markets are pricing in a near-90 per cent chance of a cut in the official cash rate when the RBA board meets on May 1.
Treasurer Wayne Swan will hand down his fifth budget on May 8, and aims to turn around a forecast $37.1 billion deficit in 2011/12 – as per last November’s mid-year review – into a $1.5 billion surplus in 2012/13.
Ms Gillard also hit back at Opposition Leader Tony Abbott for talking down the economy and suggesting it was “underperforming”.
She said such negativity scares people and costs the economy.
“That negativity can cost in scaring employers not into offering the next job or taking the next apprentice,” she said.
Mr Abbott was commenting on IMF’s 3.0 per cent forecast for Australia in 2012, which was down from the 3.3 per cent prediction in the previous half-yearly World Economic Outlook outlook report published in September last year.
“This is an underperforming economy and it’s underperforming because of the poor economic management of the current government,” Mr Abbott told reporters in Broadmeadows, Victoria.
However, the 2012 forecast is unchanged from a rate of 3.0 per cent in an IMF briefing note issued in January separately from its world economic outlook series.
But Mr Abbott agrees that it is important to return the budget to surplus, although he questions Labor’s method to achieve it.
“The way to get back to surplus is not to increase taxes, which is what this government is doing,” he said.
“The way to get back to surplus is to eliminate wasteful and unnecessary government spending.”
Ms Gillard also rejected comments from former Commonwealth Bank boss Ralph Norris that the government’s pursuit of surplus was “mindless” and the biggest threat to the economy.
She said she had to “respectfully disagree” with Mr Norris.