A rate cut?

A rate cut next month is still likely.

The minutes of the Reserve Bank board’s last meeting, on April 3, make that clear.

They recall that the Board last eased monetary policy late in 2011.

“Since then members had lowered their assessment of the pace of growth somewhat,” the minutes say.

“If  slower growth in demand could be expected to result in a more moderate inflation outcome,  then a case could be made for a further easing of monetary policy,” they add.

However, the board added a caution.

It said it would have the opportunity, at its meeting on the first Tuesday in May, to “review the inflation outlook.”

It said that evaluation would be based on “comprehensive new data on prices, as well as information on demand and output.”

The minutes said the board had thought it prudent, at its last meeting, to evaluate that data “before considerinf a further policy adjustment.”

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Assessing clean energy investments

The Federal government is to establish a Clean Energy Finance Corporation to assess investments in low emission technologies.

The Federal Treasurer, Wayne Swan, and three other ministers, made the announcement today.

They said the necessary legislation would be introduced into Parliament in the budget sittings which start next month.

The four ministers were releasing the report of a Review Panel, which has been assessing a proposal to establish the planned corporation

“The Gillard Government is building a clean energy future which will strengthen our economy and protect our environment,” Mr Swan said

“And the CEFC is a vital part of that reform agenda

“In the future the most competitive and most productive economies will be substantially powered by cleaner energy,” the Treasurer said.

“The CEFC will play a crucial role in driving the investment we need to develop and deploy those new technologies.”

Mr Swan said the new corporation would commence operations in July next year.

“The CEFC will bring to bear the utmost rigour in assessing its investments,” Mr Swan said.

“But (it) will also give effect to its important public policy objectives by facilitating transactions where they may face barriers to private investment,” he added.

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Holden wins agreement with China

General Motors Holden has secured an agreement to design and engineer two new vehicles for the huge Chinese market.

The Minister for Industry and Innovation, Greg Combet, congratulated the car maker, but said this would not have been possible without the Federal government’s earlier support for the company.

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What we are reading

Europe’s Economic Suicide, by Paul Krugman

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We borrow less

We are borrowing less – and saving more.

A new report, confirming this trend, follows other data showing that consumer confidence is still weak.

The Bureau of Statistics reported today that housing finance fell by 4 per cent in February, while borrowing for personal finance dropped by 3.8 per cent, from the January level.

Commercial finance fell by 8.4 per cent, also on seasonally adjusted figures, over the same time.

However lease finance rose by 4.1 per cent.

Our recent habit of saving more has been noted in several studies, notably by the Reserve Bank.

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We won’t cut “frontline services” Government

The Federal government declared today that it would not be cutting “front line” services in next month’s budget and that it would produce a budget surplus.

The Assistant Treasurer, David Bradbury, told reporters: “We will not take a razor to front line services.”

But he added: “It is essential that we return the budget to surplus, because (that) is in the interests of the Australian economy.”

The Greens have declared they will fight any attempt by the government to use cuts to the public service, family benefits or research and development funding to return the budget to surplus.

New Greens leader Christine Milne said her the party would pursue more spending measures, including a rise in unemployment allowances, a national dental health scheme and a boost to schools funding, instead.

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Wayne Swan’s new message

Wayne Swan is now talking of a “balanced” budget.

“This will be a balanced Budget,” he said in a paper just published.

“Balanced in that it charts a responsible middle course and balanced,” he added.

“ In that it gets us back in the black well before our peers.

“Most importantly it’s a Budget right for the challenges we face today and right for building on our unique strengths for a future in the most dynamic region in the world.”

Don’t panic.

Mr Swan is still promising to produce a surplus in his Federal budget, next month.

Even though he did use the s-word only twice, in his weekly “economic note.”

“ Returning to surplus will also ensure the Reserve Bank has the flexibility for further interest rate cuts if it thinks that’s necessary,” Mr Swan said.

Treasurers never choose their words more carefully than they do in the weeks leading up to a budget, when pre-budget speculation peaks.

Mr Swan is an old hand at all that, now.

So what, really, is his message here?

Elsewhere in his note, Mr Swan warns, yet again, that revenue will be below already forecast levels in the new financial year.

“Since the global financial crisis struck, we’ve been forced to write-down government tax revenues by $140 billion, and as I’ve indicated there will be more write-downs in next month’s Budget.,” he admits.

He declares, too,  that job creation is still a prime target for the government.

Mr Swan knows, very well, that there are conflicting elements in his note.

He is inviting his readers to interpret what he is saying.

Our guess is that his underlying message goes something like this.

“Yes, there will be a surplus.

“But it won’t be big.

“Our approach will be balanced.”

Nice word, that.

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New tax break recommended

The Federal Treasurer Wayne Swan has welcomed a new report, recommending a tax break that would encourage small to medium sized companies to invest more boldly.

The report is the first of two expected from the government’s business tax working group, which has been studying the tax treatment of losses.

The group recommended a break technically called “loss carry back.”

Mr Swan thanked group members for their work, but did not say whether the government would support either this recommendations, or measures the group also recommended to offset its costs.

The Treasurer did say, though, that the government would now wait for the group’s second report, which will deal with medium to longer term reforms.

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