Budget surplus will require effort: Henry

The federal government's return to a budget surplus in 2012/13 will require
considerable effort and a lot of discipline, Treasury Secretary Ken Henry says.
Quizzed during a Senate estimates hearing on Thursday, Dr Henry was asked what his
department meant in its advice to government - otherwise know as the `red book' -
following the election that returning the budget to surplus was a key but difficult
priority.
"We were just making the point that achieving the announced degree of fiscal
consolidation is going to require considerable effort and a lot of discipline," Dr
Henry said.
He said it involved a reduction in the budget deficit of 4.5 per cent of gross
domestic product over three years.
"That is quite demanding when revenue is not growing as strongly as revenue was
growing through the period 2003/04 through to 2007/08."
"There are always spending programs before government which are very difficult not
to make some upward adjustment for a variety of reasons."
He described the current stance of fiscal policy as "accommodative but tightening".
Dr Henry was asked by Liberal Senator David Bushby whether there was a trade off
between fiscal policy and monetary policy.
"In an economy close to full capacity, a tightening of fiscal policy would mean that
there is less work left to be done by monetary policy, and that would mean, other
things being equal, that interest rates would be somewhat lower," Dr Henry replied.
But he said the tighter stance of fiscal policy that is forecast in the budget's
forward estimates is "already quite aggressive".



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