Country Report Australia

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Summary

The prime minister, Kevin Rudd, has made a number of policy changes that mark a clean break from the previous administration, but they may create some challenges.
The Labor Party government will continue to reverse some of the changes that were made to industrial relations laws in 2006. However, it will also keep in place a number of restrictions on unions' right to strike.
The continued strength of domestic demand, a tight labour market and capacity constraints mean that inflationary pressures are likely to remain strong in 2008-09.
The Labor government will cut taxes in 2008-09, but will also trim public spending growth in order to contain inflationary pressures. The fiscal surplus will average a healthy 1.5% of GDP in 2008-09.
The Economist Intelligence Unit expects GDP growth to slow to 2.9% in 2008 from 3.9% in 2007. Interest-rate increases appear to be hurting consumer and business confidence.
The Australian dollar was at a 24-year high against the US dollar in late-May 2008, but lower commodity prices and falling domestic interest rates will weaken the currency in 2009.

The budget for fiscal year 2008/09 (July-June), released on May 13th, seeks to balance fulfilling promises made during last year's election campaign with the fiscal tightening that is needed to prevent further interest-rate increases.
The government is forecasting an underlying cash surplus of A$21.7bn (US$19.7bn) for 2008/09. The surplus is equivalent to 1.8% of GDP and is A$4.9bn higher than the expected surplus for 2007/08.
The Reserve Bank of Australia (RBA, the central bank) held the overnight cash rate at 7.25% on May 6th 2008, noting that although inflation remained uncomfortably high, there were signs that demand growth was slowing.
A business survey by the National Australia Bank showed that business confidence continued to fall in April, having already reached the lowest levels recorded since September 2001 in March.
House prices fell on a quarter on quarter basis in one-half of the eight cities surveyed by the Australian Bureau of Statistics, and the weighted mean across all cities increased by just 1.1%, the weakest gain since the first quarter of 2007.