Yesterday was Parliament’s last sitting day before the Budget, and Treasurer Peter Costello was gloating about making the OECD eat humble pie on tax There was no word if they followed it up with a custard tart, but we can still look forward to plenty of interesting economic news between now and May 10 – interesting economic, political and leadership news.

Kim Beazley has urged Werriwa voters to hold John Howard “accountable for the consequences of buying himself back into power last time, which are now not good for the country and not good for the economy” at tomorrow’s by-election. If you can trust Tuesday’s A C Neilson poll, punters nation-wide are doing just that already.

The grand old man of economics correspondents, Max Walsh, has a good take on matters in the Bulletin this week. “Australia’s next recession will almost certainly be imported,” he writes, pointing a finger at the US while warning of “the excessive exposure to debt of Australian households”.

Walsh says the Reserve Bank’s strategy is “overtly directed towards easing demand pressures,” but adds “it is difficult not to conclude that it also has an anxious eye on the government’s forward fiscal plans”.

He says “This is the post election budget, the one in which the Coalition’s long list of election promises are supposed to be honoured. Yet the budget outlook is nowhere near as favourable as it looked a few months ago. Then the Treasury was forecasting GDP annual growth of 3%. In the first six months, the figure has come in at less than 1%.”

Lower growth means a lower tax take and tighter bottom line. Walsh comments “expenditure in the big ticket areas of health and defence is probably running well ahead of budget estimates… The pressure will be on the Treasurer to bring down a budget with a credible surplus.”

Indeed. Costello’s been talking up economic basics all week in simple voter terms, like how the pay and standard of living of Australian workers have improved over the past eight years. It’s all a delicate balancing act for a Treasurer who wants to be Prime Minister – as soon as possible.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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