Largesse seen as entree to PM’s job

CANBERRA - Australian Treasurer Peter Costello said yesterday that sweeping tax cuts proposed in the Budget were not designed to buy support for his bid to become prime minister.

But Australian media reported the A$21.7 billion ($23 billion) worth of tax cuts over four years and stronger than forecast surpluses were a down payment on Costello's ambition to replace Prime Minister John Howard before the next election, due in 2007.

"This is the first Budget after an election, so you can't say it's being done to buy votes," Costello told Australian radio.

The Age newspaper said Costello's 10th budget was his farewell gift to voters as Treasurer, while the Australian said Costello had used the Budget to stake his claim for the Prime Minister's job.

But Costello said the cuts were designed to make Australia's tax system internationally competitive rather than build support for his leadership ambitions.

Howard sparked leadership tensions this month when he suggested in an interview that he may seek a fifth term, angering Costello who had expected to lead the ruling conservatives into the next election.

Costello and Howard did a hectic round of media interviews yesterday to sell the benefits of the first Budget since the Government was returned for a fourth straight term with an increased majority at last October's election.

Both Costello and Howard denied the tax cuts would pressure inflation or official interest rates, which remain at 5.5 per cent and were last increased by 25 percentage points in March.

There would be no pressure on interest rates, Costello told Australian television.

Financial markets took the Budget in their stride.

"Policy decisions since the election add around 0.5 per cent of GDP. Such stimulus should not put undue pressure on interest rates, given that domestic demand is slowing," said Stephen Halmarick, co-head of economic and market analysis at Citigroup.

- REUTERS