CANBERRA, Oct 15 (Reuters) Australia's government, facing defeat at a November election, promised A$34 billion ($30 billion) in sweeping tax cuts on Monday if returned by voters, beginning next year and phasing in over coming years.
With polls pointing to an opposition Labor landslide, Treasurer Peter Costello said the conservative government would deliver tax cuts worth A$20 a week to ordinary wage earners from July 2008, rising to A$35 a week in 2010.
The cuts would be delivered while keeping Budget surpluses of more than one percent of GDP, Costello said.
''I think we have an opportunity now to make the Australian tax system competitive,'' Costello told journalists in Canberra while standing with Prime Minister John Howard.
''We believe that a surplus of around 1 percent of GDP is responsible economic policy. This is costed, funded, responsible,'' Costello said.
Opinion polls on Monday showed Opposition Leader Kevin Rudd's Labor party ahead of the government by a landslide-winning 56 percent to 44 percent.
Howard, 68, is fighting to overturn a mood among voters for change despite the country enjoying a 10-year economic boom that has pushed unemployment to 33-year lows and tax cuts worth A$110 billion ($100 billion).
Costello predicted Australia's economy would grow by 4.25 per cent in 2007/08, up from a previous estimate of 3.75 per cent, while employment would grow by 2.25 per cent, up from a previous forecast of 1.5 per cent.
HSBC chief economist John Edwards said the tax cuts were far larger than he expected.
''It's a direct challenge to the Reserve Bank and I do think it puts Australia's inflation experience and the durability of the expansion at risk,'' Edwards said.
However, Deutsche Bank economist Tony Meer said tax cuts were affordable as tax receipts had been far larger than expected.
The budget surplus for 2006/07 turned out to be A$17.2 billion, far above the initial estimate of A$10.8 billion, he noted.
''The growth forecasts are sensible. They reflect upside surprises in growth we've already had and are in line with what private forecasters were predicting,'' he added.
($1=A$1.10) REUTERS MP AS1347