Interest rates to grow in line with economy

HOUSEHOLDERS can expect more rising interest rates next year as demand forces up wages, says economists.

Economists warn of upward pressure on interest rates as demand fuels the two-speed economy and forces up some wages / File

HOUSEHOLDERS can expect more pain from rising interest rates next year as a bullish economy strains to meet demand for an estimated 380,000 new jobs in the next 18 months, latest Treasury and Department of Finance forecasts show.

Treasurer Wayne Swan has released the Mid-Year Economic and Fiscal Outlook (MYEFO) and, as expected, that shows declining revenues caused by the high value of the dollar but extra revenue from strong growth to compensate for it.

"We are in very good nick," Mr Swan said. "These numbers demonstrate the fastest, most positive turnaround in the Government's finances in 40 years."

Economists, however, warn the figures also mean increased upward pressure on interest rates as demand fuels the two-speed economy and forces up some wages.

The forecasts put overall growth at 3.25 per cent in 2010-11, from the 3 per cent forecast in the May Budget.

Heavy demand for labour should see the jobless rate at a historically low 4.75 per cent this year, falling further to just 4.5 per cent next year.

That is regarded by economists effectively as full employment.

Opposition economic spokesman Joe Hockey said MYEFO was incomplete as several future costs were being hidden.

"There is no additional money for the ongoing commitments the Government is going to have to make to the independents to get legislation through the Parliament," he said.

The South Australian Budget also is expected to take a multi-million dollar hit as GST revenues slump.

Treasurer Kevin Foley said the state would be down $31.5 million in 2010-11 and $44 million in 2011-12, with a shortfall of $143 million over four years.

"It is a serious concern to the State Government GST revenue has taken a nationwide hit," he said.

"That will impact severely on our Budget bottom line and further highlights the reality and the need to make the big cuts into Government spending we're making."