IMF backs RBA, says budget deficit 'an option'

The International Monetary Fund has backed the Federal Government's pursuit of a budget surplus this financial year, but says it should consider delaying the surplus if Australia's economic outlook worsens.

In its latest yearly assessment of Australia's economy, the IMF also described the official interest rate of 3.25 per cent as "broadly appropriate" and noted that the Reserve Bank has room to ease the cash rate further if required.

Treasurer Wayne Swan described the IMF's Staff Report and Financial Sector Assessment Program as "another big tick" for the Government's economic management.

"Directors ...

welcomed the intention to maintain budgetary surpluses over the medium term, thus strengthening fiscal buffers against future shocks and the long-term cost of population aging," the report noted.

"Directors noted nevertheless that, in the event of a sharp deterioration in the economic outlook, and hence revenue underperformance, delaying the return to surpluses could be an option, given Australia's modest debt-to-GDP ratio." The report backed the Government’s plans to engage further with the Asia-Pacific region, through the recommendations of the Asian Century White Paper, but it also urged Australia to "seize the opportunities" of growth in Asia by boosting productivity and labour market flexibility.  "The IMF recognises that Australia is one of only a small handful of advanced countries to have avoided a recession during the global financial crisis and commends the Government’s response," Mr Swan said.

Opposition Treasury spokesman Joe Hockey says the IMF's assessment highlights the importance of bringing the budget back to surplus this year.

"Returning the budget to surplus will restore much-needed confidence in the Australian economy," Mr Hockey said.

"Only through running consistent surpluses can Australia start paying down Labor's almost $145 billion of net debt." At a Business Council of Australia event last night, Prime Minister Julia Gillard described Australia's budget as "one of the seven economic wonders of the modern world", citing the nation's AAA sovereign debt rating from the three main credit-ratings agencies.

Mr Hockey says the eight wonder of the economic world would be "an honest surplus" from the Government.

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