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SYDNEY (AFP) Boom in Asia and bust in the United States are buffeting Australia's economy, Prime Minister Kevin Rudd warned Monday as he outlined plans to rein in inflation.

In his 1st significant speech on the economy considering that his Labor party swept John Howard's conservatives out of office in November, Rudd pledged to slash government spending to make a enormous budget surplus.

The target would be a surplus of 1.five % of gross domestic product in the financial year to June 2009, he mentioned -- about 18 billion dollars (15.eight billion US dollars).

At the exact same time, the government has vowed to honour election pledges for 31 billion dollars in tax cuts.

Rudd told business leaders at a breakfast meeting in Perth that Australia faced "conflicting economic currents."

These had been: "A worldwide economy (led by the United States) which seems to be slowing. An ongoing terms of trade boom driven by Asia Pacific economies. And substantial domestic inflationary pressures at property."

Accusing the outgoing government of getting permitted these pressures to construct, Rudd mentioned his 5-point program incorporated incentives to encourage private savings even though tackling abilities shortages and infrastructure bottlenecks.

Rudd, who described himself as a fiscal conservative throughout the election campaign, stated making the price range surplus -- up from the 1. % target of the preceding government -- would need discipline.

"That will call for a determined, disciplined approach to spending and a hardline-method to savings," adding that his "razor gang" would cut wasteful spending.

Inflation is expected to exceed the Reserve Bank of Australia's target variety of two-three percent this year, raising the prospect of additional interest rate rises by the central bank.

Prices are at an 11-year high of six.75 percent right after two 25 basis point increases final year, and the effect on mortgage-belt voters is believed to have played a part in the ouster of the prior government.

Rudd noted that the downturn in the financial outlook in the US, Europe and Japan comes as powerful growth in the Asia-Pacific area is continuing to drive demand for Australia's rich mineral and power resources.

"More than coming years, developments in China will increasingly shape each global and Australian financial situations," he said.

"The Indian economy has become a single of our quickest expanding export markets and is anticipated to continue to post impressive rates of economic development.

"Combined, China and India accounted for around 40 percent of Australia's export worth development in 2006-07."

This economic expansion in the area had heightened the want for careful management of the domestic economy, he mentioned.

"And the most pressing economic challenge domestically is inflation." purchase here