Swan flags more changes to stimulus

Treasurer Wayne Swan has indicated more changes could be made to the federal
government's fiscal stimulus strategy only days before key economic growth numbers
are due.
While Australia is expected to avoid recession, homeowners are unlikely to be
celebrating as signs of recovery put pressure on interest rates ahead of a monthly
Reserve Bank of Australia (RBA) board meeting this week.
Labor's $42 billion stimulus package is also expected to come under review on
Wednesday when national accounts data for the June quarter is released.
The government has rejected opposition calls for the overall size of the stimulus
package to be wound back but Mr Swan has indicated more tweaking could be done to
the funding mix.
This follows a $1.5 billion cost blow-out in primary school infrastructure spending,
to be funded by paring back allocations for low-cost housing and home energy
efficiency programs.
"We will continue to monitor the stimulus package, to make sure it is providing
support to the economy when it is needed and where it is needed," the treasurer said
in an economic note published on Sunday.
Economists surveyed by AAP expect national accounts data for the June quarter to
show the economy growing by 0.7 per cent, an even stronger result than the previous
quarter's 0.4 per cent growth pace.
"Second quarter economic growth is shaping up to be more robust than the first
quarter, with the economy responding strongly to fiscal policy measures - including
cash handouts and small business investment incentives - and the lower cash rate,"
ANZ economist Riki Polygenis said.
If proven correct, that would mean Australia avoiding a technical recession, defined
as two consecutive quarters of economic contraction.
Funding adjustments to social housing and home energy efficiency programs were last
week recommended by the commonwealth coordinator general to pay for the blow-out in
primary schools funding.
Primary school infrastructure funding now stands at $14 billion, constituting
one-third of the $42 billion stimulus package.
Manager of opposition business Christopher Pyne described the primary schools
funding blow-out as "very embarrassing" for the government.
But Mr Swan said the government was "recalibrating" its stimulus, without changing
the overall size of it, to focus on programs that have been a "runaway success" in
supporting jobs, namely the primary school building package.
An economy on the mend, flowing from fiscal stimulus measures, also means a return
to higher interest rates.
All 18 economists surveyed by AAP expect the RBA to leave interest rates on hold
following its monthly board meeting on Tuesday.
But with rates at a 49-year low of three per cent, homeowners have been told to
brace for higher rates soon.
Fears of higher borrowing costs were stirred on Friday when the National Australia
Bank predicted rates would rise in November, marking the first increase since March
2008.
The bank's chief economist Alan Oster said emergency-low interest rates, to counter
the global financial meltdown, were no longer appropriate as consumer and business
confidence improved.
A 75 basis point jump in interest rates between November and February 2010, as
envisaged by NAB, would increase monthly repayments on an average $264,000 home loan
by $130, to $1,770.