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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 very first significant speech on the economy because his Labor party swept John Howard's conservatives out of office pet passport in November, Rudd pledged to slash government spending to make a large spending budget surplus.

The target would be a surplus of 1.5 % of gross domestic item in the economic 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 business leaders at a breakfast meeting in Perth that Australia faced "conflicting economic currents."

These have been: "A global economy (led by the United States) which seems to be slowing. An ongoing terms of trade boom driven by Asia Pacific economies. And significant domestic inflationary pressures at residence."

Accusing the outgoing government of possessing permitted these pressures to construct, Rudd stated his five-point strategy included incentives to encourage private savings whilst tackling abilities shortages and infrastructure bottlenecks.

Rudd, who described himself as a fiscal conservative during the election campaign, stated generating the price range surplus -- up from the 1. percent target of the earlier government -- would demand discipline.

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

Inflation is expected 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.

Rates are at an 11-year higher of 6.75 percent soon after two 25 basis point increases final year, and the impact on mortgage-belt voters is believed to have played a element 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 region is continuing to drive demand for Australia's rich mineral and power sources.

"Over coming years, developments in China will increasingly shape both global and Australian financial conditions," he stated.

"The Indian economy has turn into a single of our quickest expanding export markets and is anticipated to continue to post impressive rates of economic development.

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

This financial expansion in the area had heightened the require for cautious management of the domestic economy, he stated.

"And the most pressing economic challenge domestically is inflation."