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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 key speech on the economy given that his Labor party swept John Howard's conservatives out of office in November, Rudd pledged to slash government spending to make a large spending budget surplus.

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

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

Rudd told company 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 house."

Accusing the outgoing government of getting allowed these pressures to develop, Rudd mentioned his 5-point strategy incorporated incentives to encourage private savings while tackling skills shortages and infrastructure bottlenecks.

Rudd, who described himself as a fiscal conservative in the course of the election campaign, mentioned creating the price range surplus -- up from the 1. % target of the prior government -- would need discipline.

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

Inflation is anticipated to exceed the Reserve Bank of Australia's target range of 2-three percent this year, raising the prospect of additional interest rate rises by the central bank.

Prices are at an 11-year higher of 6.75 % after two 25 basis point increases final year, and the impact on mortgage-belt voters is believed to have played a component in the ouster of the previous 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 wealthy mineral and power resources.

"Over coming years, developments in China will increasingly shape both global and Australian economic situations," he said.

"The Indian economy has become a single of our fastest expanding export markets and is expected to continue to post impressive prices of economic growth.

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

This financial expansion in the region had heightened the want for cautious management of the domestic economy, he mentioned.

"And the most pressing financial challenge domestically is inflation." pets passport