Christian
Kerr writes:

What’s going to happen with the
tax cuts? Will they all get blow down at Harvey Norman? What about the
super payouts? Will they all get spent on beer and pokies – and their
recipients end up on the pension? Where’s a national savings policy,
like the removal of tax of super contributions?

All of these
thoughts have been occupying the minds of the markets since the Budget
was handed down – and they’re asking if interest rates will rise. The
PM is dogmatic on the matter. He told AM: “If you follow closely what the Governor of the Reserve Bank has said you
shouldn’t believe for a moment that this Budget will add to the pressure on
interest rates.”

Stephen Koukoulas of TD Securities – who tipped last week’s interest
rate rise – is expecting another increase, possibly as soon as September. While
it’s hard to do the figures exactly given matters of definition, some market
observers say that if the Government had decided not to change any policies in
the Budget context, this surplus for 2006-07 would have come in at around $22
billion. This
would have been a result of automatic stabilisers cutting in to dampen growth
and inflation risks.

The
Budget measures have halved this. They’ll inject some $11 billion across the
board into the economy – more than 1% of gross domestic product. That’s
why yesterday bank bill futures were up significantly from Monday morning – and
up from the moment Peter Costello rose to his feet to deliver the Budget.

The
only expectation for higher local yields is the Budget. Peter Costello dodged
the question in Parliament yesterday, but the futures market, economists say,
is pricing in another rate rise by March next year.

ANZ chief economist Saul Eslake
pointed to how the Reserve Bank Governor has consistently downplayed any notion
of a “trade-off” between fiscal and monetary policy in his Budget response – yet added, “Nonetheless, it can hardly be said that
the measures in this year’s Budget do anything to reduce the likelihood
of another rate increase later this year.”

Yet it’s interesting to
note his comments at Online Opinion that “the government has spent every dollar – plus an additional $1.4
billion – that the resources boom has dropped into its lap over the past four
years… I have to confess that I genuinely struggle to think of anything of
lasting value that has been done with it.”

No doubt
we’ll hear a lot more on interest rates in Kim Beazley’s Budget response
tonight. And,
in the meantime, this morning comes the happy news that Australia’s trade performance has received a
dismal assessment in a new international ranking of more than 60 economies.