Australian prime minister John Howard has shrugged off a warning that treasurer Peter Costello's big-spending Federal Budget could increase pressure for an interest rate rise.
Chris Richardson of economic forecaster Access Economics says the Budget means the Reserve Bank of Australia (RBA) will have to rethink its recent
pronouncements on inflation being under control.
Mr Richardson says the RBA now has to allow for an extra $16 billion of extra spending in an economy already at full stretch.
"The risk that economists would point to is you throw that much money at an economy already tight as a drum and you do risk an interest rate rise maybe ahead of the election," he said.
But Mr Howard says the economy is in good shape.
"We are running a low-inflation, low-interest-rate economy," he said.
"An inflation forecast of only 2.5 per cent, a growth forecast of 3.75 per cent - in the end, the greatest gift any government can give a business community is a sound, low-inflation, low-interest-rate, strongly-growing, low-unemployment environment."
The Government has announced $31.5 billion in tax cuts over four years. They will begin in July, when lower income earners will get about $16 a week.
Universities get more money and flexibility, with a $5 billion fund for university capital works and research.
Opposition Leader Kevin Rudd says the tax cuts for middle income earners are welcome but extra education money is just a drop in the ocean.
"The Government, conscious of the fact that it's got an election in four months' time, has realised that education has been placed on the agenda by us," he said.
"They have sought to play some catch-up football."
International ratings agency Moody's says the Budget is consistent with Australia's AAA credit rating.
Its New York-based sovereign analyst for Australia, Steven Hess, says the tax cuts are affordable, although there are medium-term risks.
"If the economy doesn't perform as well as the Government now expects because of, say, for example, a big decline in commodity prices or somehow a collapse in the property market and therefore consumer expenditure, those would be possible risks, which aren't our forecast," he said.
"But nonetheless, they are risks."
- RADIO AUSTRALIA
