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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 1st key speech on the economy because his Labor celebration swept John Howard's conservatives out of workplace in November, Rudd pledged to slash government spending to generate a enormous spending budget surplus.

The target would be a surplus of 1.5 percent of gross domestic product in the financial year to June 2009, he stated -- about 18 billion dollars (15.8 billion US dollars).

At the same time, the government has vowed to honour election pledges for 31 billion dollars in tax cuts.

Rudd told enterprise leaders at a breakfast meeting in Perth that Australia faced "conflicting economic currents."

These had been: "A international 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 property."

Accusing the outgoing government of having allowed these pressures to create, Rudd stated his five-point plan included incentives to encourage private savings while tackling skills shortages and infrastructure bottlenecks.

Rudd, who described himself as a fiscal conservative in the course of the election campaign, said creating the budget surplus -- up from the 1. percent target of the earlier government -- would call for discipline.

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

Inflation is anticipated to exceed the Reserve Bank of Australia's target variety of two-three % 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 right after two 25 basis point increases last year, and the impact on mortgage-belt voters is believed to have played a portion in the ouster of the previous government.

Rudd noted that the downturn in the economic outlook in the US, Europe and Japan comes as sturdy development in the Asia-Pacific area is continuing to drive demand for Australia's wealthy mineral and energy resources.

"More than coming years, developments in China will increasingly shape both global and Australian economic situations," he mentioned.

"The Indian economy has grow to be 1 of our fastest developing export markets and is expected to continue to post impressive rates of economic development.

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

This economic expansion in the region had heightened the want for cautious management of the domestic economy, he stated.

"And the most pressing financial challenge domestically is inflation." dog passports for you