A MODEST tightening in the federal government's budget position adds to the case for lower interest rates but a reduction in November still hinges on another benign inflation reading.
Labor on Tuesday was out selling its budget update, which spearheads $16.4 billion in extra savings to keep intact its promise of a budget surplus in 2012/13 and the next three years.
Amid declining tax revenues in a subdued global economy, the measures include a cut in the baby bonus for second and subsequent children, and a further reduction in the private health insurance rebate.
Business chiefs have been particularly angered by the decision to change the timing of company tax payments to monthly, from quarterly, to raise more than $8 billion.
But Prime Minister Julia Gillard is confident the budget bills will be passed by parliament and has dismissed the concerns of the opposition.
"Our experience in the past has been (they pass the bills), even though they are negative until they are blue in the face," she told ABC radio.
"They have come into the parliament and backed the government's legislation."
While Opposition Leader Tony Abbott hasn't ruled out backing the measures, he believes they will hurt families.
"We don't like them ... (but) we'll make a decision on what our attitude to these will be when the relevant legislation comes before the parliament," he told the Seven Network.
Treasurer Wayne Swan says it would be irresponsible to oppose changes that will give the Reserve Bank of Australia (RBA) more flexibility to cut official interest rates.
"It's important for the surplus. It's important for the future of interest rates," Mr Swan told reporters in Sydney.
Financial markets are pricing in a 25 basis point RBA rate cut in November, especially if the September quarter inflation report due on Wednesday is satisfactory.
The data is expected to show annual inflation remains below the central bank's two to three per cent target band.
However, shadow treasurer Joe Hockey says the budget "fiscal mess" creates uncertainty for business and there's no guarantee the government's new surplus of $1.1 billion, which is down $400 million from May, will be met.
"Wayne Swan is running away from a surplus faster than the road runner is running away from, you know, the coyote," Mr Hockey told reporters in Melbourne.
Woolworths, AGL and Queensland Gas on Tuesday attacked the company payment changes that apply to medium to large enterprises after 2014.
Woolworths boss Grant O'Brien told the Australian Institute of Company Directors the government shouldn't be relying on big business to fill its budget holes.
"If you're shackling businesses then you're tying the hands of the very things that are going to lead to the growth," he said.
ANZ economists estimate the "fiscal drag" on the economy from new budget measures will increase by 0.25 percentage points to the 0.75-1.0 per cent range forecast in the May budget.
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