THE DISTILLERY: Budget leakage

The power of ritual and headline fever: It's a good thing tomorrow night's budget is well anchored to a schedule and won't be postponed, otherwise a lot of trees will have died for nothing for this morning's leaks, 'exclusives' and commentaries, and likewise for tomorrow morning efforts. With the Reserve Bank releasing its new forecasts and monetary policy statement the Friday before the budget, it's always interesting to watch the scribblers struggle between the words of wisdom from the gnomes of Martin Place, and the whispers and nods from the spinners in Canberra.

So we got leaks a plenty about tomorrow night's budget: The Australian Financial Review reports this morning: "Small business and the car industry will benefit from a new tax write off in tomorrow's federal budget which is expected to reveal a deficit in 2011-12 of at least $20 billion as the soft economy continues to rob government coffers of revenue. And the Sydney Morning Herald reckons: "The government will bring forward $1.4 billion in tax relief for the low paid in the budget tomorrow to provide some help with a high cost of living forecast for the next financial year."

The AFR also said: "Evidence of solid jobs growth and a return to trade surplus could provide a promising backdrop for the Gillard government's first budget tomorrow." The Australian reported: "Wayne Swan will flood regional areas with 16,000 skilled migrants next year to maximise the payoff from the resources boom in a budget that has been smashed by a $16 billion collapse in revenue. The Treasurer will tomorrow reveal a dramatic fall in capital gains tax receipts will help drive a $20 billion budget deficit next financial year on the heels of a $51 billion budget shortfall for 2010-11." It's a bit like Rate Rise Looms.

And David Uren also wrote this morning in The Australian: "Tomorrow's federal budget will be based on an outlook of global growth above trend and continued strength in commodity prices. It will dwell on Australia's good fortune to be located in the fastest growing part of the world and the need to ensure that government does what it can to free up labour and capital for the building resources boom. Treasury's view of the economy is broadly consistent with that of the Reserve Bank, which on Friday tipped that Australia would achieve growth of 4.5 per cent in 2011-12, the fastest recorded since 1999."

And speaking of Rate Rise Looms, Michael Pascoe wrote on smh.com.au yesterday: "If Wayne Swan has the time and ability to reflect on his historical position as he stands to deliver Tuesday night's budget, he might realise he's caught in a time warp: walking in Peter Costello's 2006 shoes as the commodity booms ramps up and the Reserve Bank promises further interest rate increases. The treasurer of any other Western nation would be delighted to swap their existing problems for that scenario, but it's still not a comfortable feeling for the Deputy Prime Minister in a government that has a precarious grip on power and is well behind in the opinion polls. Yet there's precious little Swan can do on Tuesday night to dramatically change what's in front of him. Oh, there'll be some worthy trimming here and some considered cutting there as the Treasurer has firmly wedged himself into his promise of getting the budget back into surplus, but that won't change the RBA's forecasts."

And The Australian's economic editor, Michael Stutchbury, was another jotter to go back to the future and revisit the 2006-07 period in their weekend commentary: "Glenn Stevens hasn't waited for Wayne Swan's "tough" budget on Tuesday night to warn that the Reserve Bank will lift interest rates within months. The central bank governor doesn't want a repeat of the pre-financial crisis mining boom when inflation accelerated to 5 per cent. But the Reserve Bank's quarterly forecasts show underlying inflation rising to 3 per cent by the end of next year as the job market tightens. Critically, they also show underlying inflation breaking through the target to 3.25 per cent by late 2013. To maintain his low-inflation credibility, Stevens must act now to prevent this from happening."

The Melbourne Age's Malcolm Maiden wrote: "If Treasurer Wayne Swan surprises us and delivers a budget that is as tight as he has been promising, it will be a weight on economic growth that eases the pressure on the Reserve to move its cash rate higher. If the budget is soft, the Reserve could move rates up again quite quickly. Clearly, however, interest rates are not headed down here. And if economic growth is slowing again in the northern hemisphere as the markets now fear, the timing of northern hemisphere rate rises that will undermine the Australian dollar carry trade pushed even further into the future."

And The Australian's David Uren remained firmly mounted on the good horse, Rate Rise Looms, again: "Australians face an interest rate rise as early as next month after the Reserve Bank warned that a tough federal budget next week would not be enough to curb the inflation being driven by accelerating economic growth. In its quarterly economic outlook, released yesterday, the central bank predicted the economy would rocket back from the flood-induced slowdown of 2011-12 to record the fastest growth in more than 10 years. And it warned that unless the RBA lifted interest rates, the underlying measures of inflation would burst through the top of its 2-3 per cent target band. Yesterday's release of the upbeat review of the nation's economy halted a slide in the value of the Australian dollar, which had been sparked by sharp falls on world commodity markets on Thursday night."

Fairfax's Ian Verrender hits the repeat button for another appeal for a sovereign wealth fund: "Unfortunately, many of those now championing the sovereign fund idea let the nation down badly right at the starting post. They stood meekly by when the mining giants rode roughshod over the federal government's plans for a resources rent tax. Many of them openly opposed the tax and then ridiculed the watered down version. In doing so, they compromised our future, economically and politically, helping shift the power dynamic from elected officials to a triumvirate of hugely powerful but publicly unaccountable corporations. A sovereign wealth fund is a terrific idea. It would spread the fruits of the bonanza from the current boom across the economy and across generations. But you need to have the cash to stick in the fund. Maybe next time." Isn't that happening with compulsory superannuation?

In the corporate world, The Australian's Nabila Ahmed says there's a whiff of merger in the air around a couple of middle-ranked service companies: "A year on from UGL's $2.5 billion-plus takeover approach to Transfield Services, the two parties are once again flirting with the idea of a merger. The pair have kept a close watch on each other for a while and it's believed UGL recently made a preliminary approach to see if things could be taken to another level this time around."

The AFR isn't confident about retailing, reporting on Saturday: "Most fund managers reckon the retail sector could take up to two years to rebound. Even Harvey Norman's founder and chairman, Gerry Harvey, says there's no good reason to invest at the moment." David Jones gives us its third quarter sales update on Wednesday.

And this morning the paper says: "As a robust Australian dollar and weaker consumer sentiment dampen expectations for earnings growth, investors are settling for stocks that can deliver what they promise, regardless of how low the bar might seem."

News Ltd's Terry McCrann wrote yesterday in the Sunday tabloid that: "Love 'em or, more likely, loathe 'em, banks are absolutely central to your financial wellbeing in two critical areas. That those once again big profits actually hid the start of these changing dynamics. First off, the profit increases were misleading. They were mostly down to big falls in bad debts. If it were not for that, profits would have been flat or actually gone down. That trend has clearly ended." Yes, that much talked about bank inquiry from the Senate sank like a stone on Friday.

More drama at Leighton Holdings says Fairfax's Adele Ferguson: "The battle to control the country's biggest construction company, Leighton Holdings, will take another turn after a peace deal was brokered between the Spanish construction giant Grupo ACS and Hochtief to head off an embarrassing showdown at Hochtief's annual meeting in Essen, Germany, on Thursday. When the Leighton board meets next Monday, its directors, headed by David Mortimer, will be bracing for a showdown with the corporate version of a Spanish-German armada. Speculation is rife that this will include the return of the former Leighton boss Wal King to the Leighton board as a non-executive director. The board accelerated his retirement plans late last year after a rift emerged between him and the Germans." How to wreck a good company in one easy go.

And The Australian also looked at Leighton this morning: "New Hochtief boss Frank Stieler is set to be joined by a very special guest when he arrives in Sydney next Monday for critical meetings with senior executives of its Australian subsidiary, Leighton Holdings. It is understood Angel Garca Altozano, the corporate general manager of Spanish construction giant ACS, the new controlling shareholder of Hochtief, will accompany him to Australia. What they will find is a company battling to restore its battered reputation with investors following the group's shock revelation last month of major writedowns, a $427 million annual loss and a discounted capital raising of $757 million."

Fairfax's CBD gossip column says: "Expect to see a few chewed nails and bleary-eyed Macquarie bankers and Carlyle Group operatives at the Novotel Hotel in Melbourne this morning. Despite lifting their takeover offer to $303 million on Friday, Macquarie and Carlyle's year-long campaign to gain control of the red-light camera concern Redflex Group is now facing the very real prospect of falling over at today's scheme of arrangement meeting."

The Sydney Morning Herald's Economic Editor, Ross Gittins gives Reserve Bank Governor Glenn Stevens and the bank's board a whack over that big salary increase: "The price of Stevens' admission to the lowest rung of the indefensible-salaries club is the loss of his - and the Reserve's - moral authority on the question of excessive pay rises for punters. (He also forfeits the ability to be at all critical of the example set by his fellow club members.) So we start with a bulldust market-forces argument and progress to fairness arguments. When workers argued this way in the old days it was called ''comparative wage justice'' and every economist condemned it as economically irresponsible. The demigods live by different rules."

And on Saturday, Gittins rightfully gave NSW Premier Barry O'Farrell a whack for being so weak as to sack the head of the Treasury department for no reason at all except embarrassment: "This makes it all the more remarkable that the first act of the new Premier and his Treasurer, Barry O'Farrell and Mike Baird, who arrived with solemn vows to reform the state's finances, was to sack their treasury secretary, Michael Schur. Either way, O'Farrell's treatment of Schur is despicable. He's now free to make his own political appointment - Peter Boxall's name has been mentioned - but whoever takes the job will know that frank and fearless advice isn't welcome and that he may well end up a political sacrifice. The guys who supposedly are going to do a much better job of managing the state's finances are off to an appalling start."

And finally financial markets took fright on Friday night our time when rumours emerged that Greece was thinking of leaving the euro. It was denied, but the Financial Times' Wolfgang Munchau looks for the real culprits: "They cannot even organise a private meeting. How can they then solve a debt crisis? The bungling of a not-so-secret gathering of finance ministers in Luxembourg on Friday night provides an object lesson in how the politics of eurozone crisis resolution are going wrong. We learnt this from a leak to Spiegel Online. The German news site's story said Greece was considering leaving the eurozone, and that finance ministers were holding a secret meeting to discuss the issue. The story also offered the intriguing detail that Wolfgang Schuble, the German finance minister, had a report in his briefcase warning him of the prohibitive costs of a Greek exit." Greece's financial position is to be re-examined (again), starting this week, as a result of that meeting.