Treasury chief to defend budget forecast

The nation's top financial bureaucrat will have an opportunity to defend's his
department's forecasts, after the government took a hit in opinion polls following
last week's federal budget.
Treasury Secretary Ken Henry will make his traditional post-budget lunch address to
the Australian Business Economists group on Tuesday, and to an audience that has
openly criticised Treasury's economic growth forecasts.
A key component of the budget was meant to be the government's so-called "deficit
exit strategy", but economists say the growth projections it is based on are far too
optimistic.
The Treasury, while cutting its near-term gross domestic product (GDP) forecasts
because of the recession, are projecting well above average growth outcomes of 4.5
per cent from 2011/12 onwards to return the budget back to surplus by 2015/16.
While Treasury says past recessions have been followed by a sharp recovery, Nomura
Australia chief economist Stephen Roberts says it is hard to believe that households
will be that quick to respond.
"There is no way you can expect the normal rebound because the household sector
isn't going to turn on a dime again," Mr Roberts said.
He said households were taking the opportunity to repair their own budgets, which by
definition was a "long-term process".
Voters aren't overly impressed with the budget either, causing Prime Minister Kevin
Rudd to suffer his first major setback since coming to power 18 months ago.
The latest Nielsen poll - published in Fairfax newspapers on Monday - showed Mr
Rudd's approval rating has slumped 10 points.
It also showed the coalition's two-party vote jumped five points to 47 per cent,
while Labor has fallen five points to 53 per cent.
Essential Research's weekly online poll also found Mr Rudd's approval rating has
dropped, to 62 per cent, down from 71 per cent in March.
But Treasurer Wayne Swan said the budget was aimed at getting the economy right in
the long term, not winning short-term popularity points.
"There were going to be some tough decisions and the choices we made were not
popular but we kept the settings right for the long time," Mr Swan told ABC Radio.
He said the Labor government was trying to deal with a global recession while
watching the mining boom unwind.
Reserve Bank of Australia (RBA) governor Glenn Stevens will also make an address on
Tuesday, to the Canadian Australian Chamber of Commerce, but he is unlikely to make
a direct comment on the budget.
The central bank has been supportive of past fiscal action taken by the government,
in conjunction with its own interest rate cuts, to cushion the blow of a global
recession.
Mr Stevens' speech is more likely to focus on comparisons with the Canadian economy,
and promote some mutual back-patting given that the financial crisis has left retail
banks in both countries the strongest in the world.
RBA minutes from its May board meeting, when the cash rate was left unchanged at a
49-year low of 3.0 per cent, are also released on Tuesday.
"RBA officials appear in no hurry to cut the cash rate, apparently preferring to sit
on the sidelines to allow themselves time to assess the impact on the economy of the
significant amount of monetary and fiscal policy stimulus already delivered," JP
Morgan chief economist Stephen Walters said.
Still, Mr Roberts said with the budget deficit forecast for 2009/10 having blown out
to a record $58 billion already, it does leave any future economic stimulus in the
hands of the central bank if it is needed.
"We have definitely reached the limit of fiscal expansion with that budget," he said.
"There is no way in the world they can possibly come out with another big fiscal
spending package."