PM concerned about US 'fiscal cliff'

Prime Minister Julia Gillard stands by forecasts for the budget to return to surplus but says she is concerned about the implications for the Australian economy from the "fiscal cliff" in the United States.

The so-called fiscal cliff - the predicted effect of a combination of legislated tax increases and spending cuts - if not averted, is expected to drive the US back into recession next year.

There are also rising fears that if the world's biggest economy tanks again, others could be dragged over the edge with it.

Ms Gillard, who has been meeting with about a dozen world leaders in Bali, said on Friday she was concerned about the implications for global finances and the Australian economy.

But the prime minister insisted that her government would still deliver a budget surplus next year as promised, despite the worrying signs coming out of the US and the economic slow-down in Europe.

"Of course we are concerned about the fiscal cliff in the US and we are concerned that if this matter isn't resolved it will have severe implications for the economy of the United States and that's got implications for the global economy including our own," Ms Gillard said on Friday.

"But I'm not going to deal with hypotheticals about our budget position."

The Mid-Year and Economic and Fiscal Outlook (MYEFO), released last month, has forecast a $1.1 billion surplus in 2012/13, with improving surpluses to 2015/16.

"We've got in there the projections that treasury believes are appropriate for the Australian economy and we've made savings in there, hard savings, to bring the budget to surplus," Ms Gillard said.

"We stand by the work that was done for the Mid-Year and Economic and Fiscal Outlook."

US President Barack Obama is set to begin negotiations with Congress soon in an effort to reach a budget compromise over the tax increases and spending cuts that would result in the fiscal cliff, and which are to come into force on January 1.

However, financial markets around the globe slid for a second day in a row on Friday over doubts that the issue will not be resolved in time.

At 1200 AEDT on Friday, the benchmark S&P/ASX200 index was down 32.3 points, or 0.72 per cent, at 4,451.5 points, while the broader All Ordinaries index had fallen 29.9 points, or 0.66 per cent, to 4,472.3 points.

On Wall Street on Thursday, the Dow Jones Industrial Average lost 120.95 points, or 0.94 per cent, to 12,811.78 points.

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    0.9298+0.0011+0.12%
    AUDUSD=X
    0.5538+0.0003+0.06%
    AUDGBP=X
    0.6726+0.0005+0.07%
    AUDEUR=X
  • Commodities
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