Budget takes account of Europe woes: Swan

17 May 2012, 5:22 pm   -   Source: AAP

The renewed surge of uncertainty in Europe has not dated the federal government's budget forecasts, says Treasurer Wayne Swan.

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Treasurer Wayne Swan does not believe his budget forecasts have been dated by troubling events in Europe over the past couple of weeks.

Mr Swan said last week's budget predicted a European recession, forecasting a 0.75 per cent contraction in economic growth in the area, a level it has yet to reach despite its problems.

"We have put into our forecasts an outlook for Europe which sees it as having a long and painful adjustment," Mr Swan told reporters in Adelaide on Thursday.

Since the release of Mr Swan's May 8 budget, political upheaval in Greece has again raised fears that it will drop out of the single-currency union, causing another burst of volatility in global markets - including a drop in the Australian dollar below parity with the US dollar.

Greece will return to the polls on June 17 after failing to form a government after its May 6 election.

In contrast, Mr Swan said the budget had sent a clear message to the world about Australia's economic stability, returning a surplus and building on surpluses into the future.

"There is no other developed economy doing that and that says our economic fundamentals are strong," Mr Swan said.

But Opposition Leader Tony Abbott questioned the validity of the predicted 2012/13 surplus given that the government is seeking to raise the nation's debt ceiling by a further $50 billion to $300 billion.

"The fact that they want to borrow more shows that they don't believe their claim that they'll get back into surplus," Mr Abbott told reporters in Melbourne.

The opposition will seek to have parliament debate the ceiling increase separately from the government's appropriation bills.

"We cannot trust this government, once it's got access to more money on the national credit card, not to go out there and blow the dough," Mr Abbott said.

Meanwhile, new data highlighted the strains of a two-speed economy, and the disparity between incomes across industries.

Australian Bureau of Statistics data showed the national average wage now stands at $69,992 after rising 4.4 per cent in the 12 months to February.

However, the breakdown among industries could not be more stark, with the average salary among miners at $117,905, after an annual eight per cent rise, compared with workers in the food services and accommodation who saw a more modest 3.7 per cent increase to $49,712.

This data series tends to be volatile due to its composition. The Reserve Bank of Australia (RBA) prefers the wage cost index to gauge wage growth.

The index was released on Wednesday, showing a 0.9 per cent increase over the March quarter for a fairly benign annual rate of 3.6 per cent.

Commonwealth Securities economist Savanth Sebastian said the low inflation environment ensured the RBA could cut the cash rate further, and was forecasting a reduction in August.

"However, the risks are that the central bank moves earlier given the uncertainty surrounding Europe," Mr Sebastian said.

Consumers don't appear convinced that inflation is under control, with the Melbourne Institute's latest survey of inflationary expectations at 3.1 per cent, above the RBA's two to three per cent target band, and despite easing 0.2 percentage points in May.

"This robust outlook for inflation is in line with an unemployment rate around five per cent and likely puts some restraint on how much further easing in monetary policy the RBA is comfortable with," Melbourne Institute research fellow Edda Claus said.

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