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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 very first major speech on the economy considering that his Labor party swept John Howard's conservatives out of workplace in November, Rudd pledged to slash government spending to make a large budget surplus.

The target would be a surplus of 1.five percent of gross domestic item in the financial year to June 2009, he said -- about 18 billion dollars (15.8 billion US dollars).

At the 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 financial currents."

These were: "A global economy (led by the United States) which appears to be slowing. An ongoing terms of trade boom driven by Asia Pacific economies. And important domestic inflationary pressures at house."

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

Rudd, who described himself as a fiscal conservative for the duration of the election campaign, stated creating the spending budget surplus -- up from the 1. percent target of the previous government -- would call for discipline.

"That will need a determined, disciplined strategy to spending and a hardline-method to savings," adding that his "razor gang" would reduce wasteful spending.

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

Rates are at an 11-year higher of six.75 percent after two 25 basis point increases last year, and the effect on mortgage-belt voters is believed to have played a element in the ouster of the preceding government.

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

"Over coming years, developments in China will increasingly shape each worldwide and Australian financial situations," he said.

"The Indian economy has turn into a single of our fastest expanding export markets and is anticipated to continue to post impressive rates of financial development.

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

This economic expansion in the region had heightened the need for cautious management of the domestic economy, he stated.

"And the most pressing economic challenge domestically is inflation." visit site