Australia's Treasurer is not expected to cut taxes

Australia is planning to use Tuesday's budget to prop up growth in the face of the persistent global downturn, according to Treasurer Peter Costello.

"If you can keep your economy growing in spite of all that, then you'll be one of the countries which is leading the world, and that's what we're aiming to do," said Mr Costello.

The budget should also swell the coffers of the armed forces, not only to pay for Australia's involvement in the US-led war on Iraq but also to bolster security in the wake of last year's deadly bomb attack in Bali.

But with an election due next year, tax cuts - sought by low-paid workers and executives alike, given the country's budget surplus - are probably off the cards, analysts believe.

Instead, any extra money is likely to go to Australia's farmers, who are recovering from a long drought.

Defying the gloom

Australia's economy is faring better than many, especially given the damage wrought by the Sars virus across much of the region.

Growth this year, Mr Costello said, will probably hit the target of 3%, although he said the 4% prediction for 2004 was "optimistic".

Business confidence has soared to a three-month high in April following the end of hostilities in Iraq, in stark contrast to the situation in the US, Europe and Japan.

Less welcome news - albeit further evidence of Australia's economic health - is the strength of the Australian dollar, up to almost 65 US cents at a 40-month high.

Australian interest rates are at 4.75% amid a continuing housing boom, almost four times the US's record low of 1.25%.

Fine print

Front and centre in the budget are the planned defence measures, including paying the estimated A$750m cost of war in Iraq.

Newspapers have speculated that A$700m could be raised by selling government-owned land.

But the other big priority is Australia's debt, which the government wants to extinguish altogether.

The 2004 fiscal year should reduce overall debt to just 1.5% of national output, Mr Costello says, to be wiped out altogether the following year.