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Belts will need to tighten

QUEENSLAND Treasurer Andrew Fraser has warned caution needed to be taken in the wake of the latest Consumer Price Index figures that show inflation strengthened in the December quarter.
The latest figures show the annual headline inflation rate came in at 3 per cent.
However, the underlying measures which the Rserve Bank of Australia (RBA) takes into account when determining interest rates, were above expectations.
Underlying inflation in the quarter was around one per cent, above market expectations of 0.8 per cent.
"If you were to take the pulse of the Australian economy it's strong but alarm bells are sounding and it's time for caution," he said.
"We are seeing two forces at work. Strong growth is pushing up inflation domestically while the fall-out from the United States sub-prime housing crisis is casting doubt over the global economic outlook.
"I don't think the music has stopped on the sub-prime fall-out."
Mr Fraser said despite the strong growth underlying the latest inflation result, the sub-prime fall-out is starting to be factored into growth forecasts.
The Consumer Sentiment Index published by the Westpac-Melbourne Institute shows that consumer sentiment in Queensland fell by 4.5 per cent this month, to be 10.7 per cent lower than a year ago.
Mr Fraser said he was preparing for expected poor investment returns to impact negatively on the State Budget's bottom line.
"Although we are only half way through the year, I realistically expect that investment returns will impact negatively on our budget bottom line this year.
"Unlike any other State or the Commonwealth Government, Queensland has fully funded its future superannuation liabilities.
"Investment returns from these funds are included in the budget's bottom line result.
"In contrast to 2006-07, where a 14.1 per cent return was achieved, the result for 2007-08 is likely to be substantially lower.
"Queensland is again set to be a victim of its own success - in a sense we are being punished for being responsible financial managers for the last 25 years. But we are well positioned to meet the economic challenges.
"With a strong balance sheet and prudent financial management we can deliver an infrastructure program which will increase the economy's productive capacity and ease inflationary pressures."