Message no longer surplus

IT HAS been at least three years since economists and analysts started calling for the surpluses created by the sale of government assets during the past decade be used to reduce government debt rather than for increased spending opportunities.

Has this message finally reached our esteemed Treasurer? It appears so.

Speaking after a two-day talkfest with investment bankers in New York, Peter Costello put Cabinet on notice about pre-election spending by saying Australia does not have the luxury of a second best policy.

This would indicate to the Cabinet that the asset sales such as Telstra, Telstra 2 and Commonwealth Bank that delivered such large sums of money to the government would now be used for the retirement of government debt. This is the sort of view economists and investors in Australia and overseas have been looking for to achieve some value in our beleaguered dollar.

Investors can take comfort in the fact that the financial controls over expenditure that had been so lacking during the past few years is finally being addressed.

The initial “wish list” that kicks off the budget setting process started recently, with ministers submitting their spending requirements to the Treasurer.

There are a number of big spending initiatives including a multi-billion dollar package boosting defence spending and other measures. This is going to make this Budget much more interesting for analysts.

Standard and Poor has indicated that Australia was on track to regain its AAA credit rating if the current trend continued. The example that our Treasurer points to is not the absolute debt to GDP ratio in this country of around eight per cent.

This figure compares favourably with the levels achieved in Britain and the US which have ambitious debt reduction programs.

We now have to demonstrate we are serious about the debt reduction program in Australia. This budget looms as a very important test of the Government’s resolve to achieve the same levels of debt-reduction.

For the Howard Government this comes at a time of pre-election. Pre-election budgets do tend to be big spending.

Having introduced and implemented a generally unpopular GST and PAYG system, the Government will be hell-bent on throwing money at the electorate to shore up its voting position.

The market, on the other hand, is not likely to take too kindly to big spending of this nature.

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