Tax cuts key to Australian budget

Costello's budget is voter-friendly

Australia's voters are in line for tax cuts and increases in family support as the conservative government prepares for an upcoming election.

In his budget speech, Treasurer Peter Costello said strong economic growth meant the government could afford to boost spending on defence as well.

Australia's economy is forecast to expand 3.5% in the coming year.

Prime Minister John Howard is expected to call an election some time between August and September this year.

The budget is currently in surplus to the tune of A$2.4bn, while the national debt is just 3% of gross domestic product.

The economic strength, which has made itself felt in a huge housing boom, means that interest rates have not fallen as has been the case elsewhere in the world.

At 5.25% they are the second highest in the industrialised world - although the Organisation for Economic Co-operation and Development, in its six-monthly outlook, says they need to be higher to keep the economy going strong.

"This is a budget that has a lot of gain for households and very little pain," Brian Redican, chief economist at Macquarie bank, told the BBC's World Business Report ahead of Mr Costello's budget speech.

"I think it'll be very voter friendly as we've got an election coming up later this year."

Security focus

The A$14.7bn tax cuts and the extra defence spending came as little surprise.

Ever since Australia took on the role of a key ally in US President George W Bush's "War on Terror", Mr Howard's government has stressed its security credentials.

The focus was intensified further after 88 Australians died in the 2002 Bali bombing.

Mr Costello is allocating A$2.3bn to fund Australian troops in Iraq, to put armed guards on flights and to protect iconic sites such as the Sydney Opera House.

Family help

As for the tax cuts, they will be phased in over four years by increasing the income levels at which the two top tax rates begin to apply, Mr Costello told parliament.

Less well-off families should benefit from a A$19.2bn, five-year package which includes:

A$3,000 for every new-born child,

40,000 new after-school places, and

fresh tax breaks.

All in all, Mr Costello said, the total gain amounted to an average of about A$50 a week per household.