Australian PM rules out early poll after budget

CANBERRA, May 10 (Reuters) Australian Prime Minister John Howard ruled out an early election today after using a mid-term budget to announce widespread tax cuts designed to ease the pain of higher petrol prices and interest rates.

The government yesterday announced Australia 36.7 billion dollars billion) of tax cuts, a week after the central bank raised interest rates by 0.25 points to 5.75 per cent to curb inflation, and with petrol prices hitting new highs.

''I'm not planning an election this year. Heavens above, three years is short enough,'' Howard told Australian television.

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 2007.

Howard, who has won four consecutive terms, said the budget giveaways were not part of a plan to call an early poll to cash in on instability within the opposition Australian Labor Party.

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

Treasurer Peter Costello's 11th budget 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.

In media interviews to sell the budget today, Howard and Costello dodged several questions over the leadership, with Howard repeating his mantra that he would stay on as long as voters and his party wanted him.

Financial markets were rattled by the generous tax cuts, concerned they would fuel inflation and force interest rates up again.

Higher interest rates and higher petrol prices will 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.

Howard and Costello said the tax cuts would not fuel inflation and would not trouble the central bank to again lift rates, with the budget forecasting inflation to ease from the current 3 per cent 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 2 to 3 perc ent over the course of the cycle,'' Costello told Australian television.

REUTERS SI RN0946