FED:Costello says 03/04 federal budget based on hard year ahead

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FED:Costello says 03/04 federal budget based on hard year ahead

MELBOURNE, Feb 17 AAP - Federal Treasurer Peter Costello said today that the 2003/04federal budget would be based on a hard year ahead and defence spending would be a priority.

"The international economy is weak," Mr Costello told reporters.

"There is all of the uncertainty of war, possibility of war.

"There's the effect that that has in relation to confidence and it's going to be adifficult year," he said.

"Obviously, there is going to be a big draw on the budget in relation to our defencebecause we predeployed troops and that will have a priority in relation to new expenditures."

Mr Costello played down speculation of an early federal election.

"You always have that speculation," he told journalists.

"The fact that you have the speculation doesn't mean it's going to happen."

Mr Costello said it was up to the Senate to pass the federal government's legislation.

"I'm now doing a budget in a situation where our budget measures in the 2002/03 yearhave not been passed. We're leapfrogging last budget and we're now into next year's budget.

"You've got this campaign of obstructionism by Labor in the Senate. What I say to theSenate is pass the legislation - that's what I'm focusing on."

Mr Costello welcomed an upgrade of Australia's foreign currency sovereign rating toAAA from AA-plus.

"What this means is that if the government were to borrow it would be able to borrowat cheaper rates, but the government is not borrowing at present because we are repayingdebt," he said.

Mr Costello said that Australian companies in the private sector could now borrow overseaswithout having a risk premium built in as a consequence of a lower value top grading.

"So the good news is that Australian companies will now be able to borrow at betterrates - that's better for them and it means that Australia's economy will be strongerfor it."

The Treasurer said Standard & Poor's had re-rated Australia because the country hadone of strongest budget positions in the world.

He said the Australian economy was now in the position it had before it suffered damagein the 1980s.

"We've got a sound financial sector, now backed up by a government sector which isin a very strong financial position."

Asked how Australia was now positioned internationally, Mr Costello said: "The internationaleconomy is very difficult - there's no doubt about that. The international environmentis as difficult as it has been certainly in the last couple of decades."

AAP tsc/sh/rsm/ts

KEYWORD: BUDGET COSTELLO