AUSTRALIAN GOVERNMENT MUST CUT SPENDING, ANZ SAYS The government must announce harsh cuts in spending in its May 14 economic statement if it is to give an adequate response to Australia's economic problems, the ANZ Banking Group Ltd <ANZA.S> said. Cuts of two billion dlrs would be insufficient against the backdrop of a 12 billion dlr government deficit and a 14 billion dlr current account deficit, it said in its monthly Business Indicators publication. "For the past two years, the government has struggled with an economic reality that demands measures beyond those which it sees as politically practicable," it said. The political climate meant there would be a continued over-reliance on monetary policy to hold the exchange rate and maintain confidence in economic management, ANZ said. "The cost of this approach is that the much-needed revival of business investment will be further postponed," it said. The economy was now on a modest growth upswing boosted by export and import-replacement industries which had created a false suggestion that the worst adjustments to the balance of payments crisis were past. "Unfortunately, successful adjustment to Australia's deep-seated economic problems remains a long-term process," it said. In its economic forecasts, ANZ said it expected moderate overall economic growth with gross domestic product (GDP) rising 2.7 pct this year and 2.4 pct in 1988. The current account deficit would narrow to five pct of GDP this year and 4.3 pct in 1988 and net foreign debt would grow strongly from 81 billion at the end of 1986 to 97.2 billion at end-1987 and 110.3 billion a year later. Inflation would fall to 8.5 pct in 1987 and 7.5 pct in 1988 from 8.9 pct in 1986 and further falls in real wages were expected, ANZ said.