Budget rumours flow as RBA decision looms: Economic roundup

Speculation surrounding the content of state and federal budgets provides an interesting backdrop to today’s Reserve Bank of Australia meeting on interest rates.

Few expect the RBA to announce any change in official rates when they announce their decision at 2.30pm, but the fate of future rate rises could partly depend on the spending approach taken by governments.

At the federal level, the signals being given out by the Treasurer Wayne Swan all smack of fiscal restraint, with reports today that he plans to slap means tests on Family Tax Benefit B and the baby bonus, and is considering cutting back tax concessions on superannuation and capital gains.

Victoria is the first cab off the rank among the states, with Treasurer John Lenders set to deliver his first budget this afternoon.

The early rumours from Victoria are in stark contrast to those around the federal budget, however, with a boost in support for parents, cuts to stamp duty and payroll tax all rumoured to be on the cards.

And all this is quite apart from yesterday’s announcement of significant pay rises for the state’s teachers, with some teachers to receive an immediate wage increase of up to $10,000 per year.

Combined with yesterday’s economic data – with inflation remaining at strong levels and house prices up a surprisingly strong 13.8% for the year to March – and the ongoing uncertainty created by the credit squeeze, the RBA board will have plenty to talk about today.

In today’s data, the strong Australian dollar – currently at US94.79c – and a slower global economy are continuing to hold tourist numbers down, with the number of short-term visitors to Australia dropping 1.3% seasonally adjusted to 472,500.

There is some good economic news today however, with Australia’s trade deficit with the rest of the world decreasing 16% seasonally adjusted to $2.7 billion in March.

On the markets, St George Bank’s disappointing profit announcement and a weak lead from the US overnight have pulled markets lower, with the S&P/ASX200 down 0.5% to 5701.3 at 12.10pm.

Return to SmartCompany shortly after 2.30pm for coverage of the RBA’s interest rate decision.