The government announced A$36.7 billion ($28.2 billion) of tax cuts on Tuesday, a week after the central bank raised interest rates by 0.25 points to 5.75% to curb inflation, and with petrol prices hitting new highs.

 

John Howard told Australian television that he is not planning an election this year. "Heavens above, three years is short enough," he said.

 

The government is half way through its three-year term and can call an election at any time, but does not need to go to the polls until the second half of next year.

 

 

Howard, who won his fourth consecutive term in October 2004, said the tax cuts were not part of a plan to call an early poll to cash in on instability within the opposition Australian Labor party.

 

A decade in office

After 10 years in office, Howard's conservative government continues to hold a narrow lead over centre-left Labor.

 

High fuel prices are taking their
toll on Australians

The eleventh budget of Peter Costello, the finance minister, was seen by some newspapers as a signal to Howard to step aside and hand over the leadership reins to his heir-apparent before the next election.

 

"Peter Costello's audacious budget might be a signal to John Howard to buy that new set of golf clubs," Australia's biggest circulation newspaper, the Melbourne Herald Sun, said.

 

Howard and Costello gave several interviews about the budget, but avoided questions over the leadership. Howard

 

said again that he would stay on as long as voters and his party wanted him.

 

Financial markets were rattled by the tax cuts, concerned they would fuel inflation and lead to higher interest rates.

 

Responsible reform 

This would hurt people in the outer suburbs of cities such as Sydney and Melbourne, whose support for Howard has been crucial to his continued political success.

 

But Howard and Costello said the tax cuts would not fuel inflation and would not prompt the central bank to increase rates again. The budget forecast that inflation would fall from the current 3% over the next year.

 

"These tax cuts, which are responsible reform of the tax system, are totally consistent with monetary policy objectives ... of having underlying inflation of two to three per cent over the course of the cycle," Costello said.