Economic growth picked up sharply in the second half of 2003 and should reach 2½ per cent by 2005 as the international economy recovers and business investment strengthens. Unemployment is likely to peak in 2004 and inflation to fall to below 1½ per cent in 2005, reflecting low increases in unit labour costs. The government needs to slow the growth in primary expenditures so as to put public finances on a sustainable path and make room for the planned further labour income tax cuts. This should be complemented by social security reforms to increase work incentives, especially for older workers and the long-term unemployed...