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IMF applauds Australia’s surplus plans

SYDNEY, May 7 – The International Monetary Fund Monday applauded Australia’s plan for a budget surplus, saying it will help “rebuild fiscal buffers”, in comments the government seized on as “a ringing endorsement”.

Treasurer Wayne Swan is set to unveil one of the toughest budgets in years for the mining-powered economy on Tuesday, with deep spending cuts expected to meet a targeted modest surplus next financial year.

Writing in The Australian Financial Review, IMF chief Asian economist Anoop Singh said a commitment to return to surplus in 2012-13 would put Australia in an even better position to buffer against economic shocks.

“In light of the historical terms of trade highs and the significant structural change in the economy, tighter fiscal policy combined with an easier monetary stance represents an appropriate policy mix,” he said.

However, he warned of an upside risk to the Australian economy, with investment in the resources sector potentially larger than expected, which would boost growth and push up wages and inflation.

Singh added that not all sectors of the economy were benefiting from the mining boom, and reforms were required to “build a more flexible economy” to ensure resilience.

Australia, which survived the global financial crisis without dipping into recession, has previously been forecast by the government to deliver a Aus$1.5 billion ($1.6 billion) surplus for the 2012-13 fiscal year beginning July 1.

A surplus would represent one of the fastest budget reversals in Australian history, overcoming a current year deficit predicted to be at least Aus$37.1 billion.

The Australian newspaper reported that in the budget Swan would cut the ratio of government spending to gross domestic product by 1.6 percent to 23.5 percent in 2012-13.

The figure would be the biggest fall in government spending as a share of GDP since 1987-88, it said.

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Swan on Monday said the budget would show the Australian economy “walks tall in the global economy but supports lower and middle income earners at home”, and trumpeted Singh’s assessment.

“What we’ve seen is a ringing endorsement from the International Monetary Fund,” the treasurer said.

The budget release comes amid mounting speculation that Prime Minister Julia Gillard, who is performing dismally in opinion polls, will face a challenge to her leadership from within Labor’s ranks.

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