warning to high-income earners

that they will bear the brunt of the

pain of Tuesday's federal budget.

Finance Minister Lindsay Tanner

has declared higher earners will be

expected to use their tax cuts

which the Government has

guaranteed to isolate themselves

from a series of harsh budget

measures, set to lop between

$3billion and $4 billion off government

spending.

''People on high incomes people

like me will be getting significant

tax cuts,'' Mr Tanner said. ''We are

very conscious of the fact those

people on lower incomes and working

families generally have cost-of-

living issues, we're very keen to

make sure we protect them as much

as possible.''

High-income earners needed to

understand ''the tax cuts in particular

will be insulating them from the

impact of the budget cuts that

would spread reasonably wide''.

Mr Tanner would not be drawn

on whether the $5000 baby bonus

would be universally available, but

his remarks have all but confirmed

that some allowances will be

means-tested.

''We don't believe that there will

be substantial pain, or really major

pain for any significant groups of

people but inevitably when you

make spending cuts, that means

that there has to be pain,'' he said.

Reinforcing his hard line on government

spending, Mr Tanner

denied reports that Prime Minister

Kevin Rudd had vetoed cuts

proposed by Mr Tanner's razor

gang, the Expenditure Review Committee

of Cabinet.

''You get some pretty willing

discussions, because people,

ministers in particular, have strong

views,'' he said, adding that ''all the

players'', political and bureaucratic,

were ''very conscious of the wider

task'' of reining in spending to fight

inflation. ''It's just my particular

role to be the bad guy,'' he said.

Mr Tanner shrugged off calls by

shadow treasurer Malcolm Turnbull

for $6 billion of spending cuts,

saying Labor's $3-4 billion would

''make a difference''.

Both the Reserve Bank and

financial markets expected substantial

savings, and they would be

delivered, with low-income earners

particularly protected.

Mr Tanner also denied that the

Treasury believed that the new

Government's undoing of the Howard

government's WorkChoices

industrial-relations policy could

fuel inflation, saying inflation had

remained low through the last four

regimes of workplace law.

On the inflation front, Treasurer

Wayne Swan insisted that wage rises

had to be linked to productivity

gains to avoid a bout of wage-led

inflation. Speaking in the wake of a

15 per cent wage deal for Victorian

teachers, Mr Swan said, ''We put

forward a system of enterprise

bargaining where wage rises have to

be linked to productivity.

''That's the central element of our

industrial relations system that we

are putting in place.''

ACTU president Sharan Burrow

rejected last night the suggestion

that unions were making

inflationary wage increases, including

the Victorian teachers' pay deal.

''At the moment, we can see no

evidence of anything but reasonable

wage outcomes, most of them are

actually extraordinarily constrained

given the impact that WorkChoices

has had on people's purchasing

power and now of course, the

increased costs,'' she said.

''Working people deserve a pay

rise; let's judge each enterprise

bargain by its outcome and recognise

there are a lot factors that go

into those wage claims and the

outcome of bargaining depending

on the enterprise and the industry.''

Australian

Workers Union

national secretary Paul Howes said

there was added pressure to campaign

for higher wages but it was

in no way orchestrated across the

union movement and it would

always come down to bargaining

enterprise by enterprise.

''I think it's actually incorrect to

talk about a wages outbreak generally

because a wages outbreak

can't happen in a decentralised

wage system, so pattern

bargaining is illegal, we don't

pattern bargain and enterprises

that can afford to pay more will

pay more, places that can't afford

it won't,'' he said.

In the building industry,

CFMEU national secretary Dave

Noonan said wage rises of 5 per

cent for this year for building

workers in NSW and Victoria were

already locked into existing

enterprise agreements and that

outcomes for other states would

differ according to the enterprise.

The first of 10 specific budget

recommendations from the Australian

Chamber of Commerce and

Industry on workplace matters,

out yesterday, is a proposal to link

collective bargaining to productivity

and efficiency gains.

''The current 30-year-low level

in unemployment reflects past

reforms by governments of both

major political persuasions,'' the

submission said.

''... Overall, the Australian

economy is still growing but productivity

growth has slowed, and

skills and infrastructure

constraints are holding back

further growth.''

Mr Swan's view was mirrored by

the president of Labor's Caucus

Economics Committee, David

Bradbury, who said a tight labour

market was ''always a challenge''

in terms of wage rises and

inflation.

Mr Bradbury, who won the

critical Sydney seat of Lindsay

from Jackie Kelly at last year's

election, said he expected the

budget to provide ''the first downpayment,

specifically and generally''

of Labor promises for the

people of western Sydney.