Balancing
countervailing forces
This Budget is framed at a challenging time of countervailing forces, with high inflation at home and financial market turbulence abroad. Global growth could weaken further due to stresses in international financial markets. Counteracting this, Australia's terms of trade will surpass 50‑year highs, boosting incomes and prices.
High inflation
Price pressures have intensified in recent years, with consumer prices rising 4.2 per cent this past year, the highest underlying inflation figure in over 16 years.
Rising coal and iron ore prices will drive the largest increase in our terms of trade in a generation. This will raise incomes and add to price pressures.
This makes fighting inflation the Government's number one priority.
Financial market turbulence
Turbulence in world financial markets is having a widespread impact on the global economy.
These developments are resulting in slower global growth and higher borrowing costs with some impact on our economy.
While we are not immune from the effects of financial market turbulence, Australia is better placed than most to weather the fallout.
Balancing forces
Weaker global growth and higher interest rates are having an impact on the Australian economy, with growth forecast to slow to 2¾ per cent in 2008‑09.
However, strong terms of trade will add to price pressures.
Nominal GDP is forecast to rise by 9¼ per cent in 2008‑09, the fastest rate in 19 years.
Our tight fiscal policy will play a role in these circumstances, bearing down on inflation, while investing to sustain productivity and growth.
High underlying inflation
Record high in the terms of trade
Diverging real and nominal GDP