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Australia's Treasurer Wayne Swan talks to journalists during a doorstop news conference outside the Parliament House in Canberra - Source: Reuters -
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Australia's government unveiled its largest deficit on record and forecast a decade of debt in a budget designed to nurse the economy through recession and keep open the option of an early election.
Treasurer Wayne Swan said the global downturn forced the government to write down revenues by $AU23 billion in the current year, its biggest hit to income since the Great Depression, and by $AU210 billion over four years.
"We've seen the global recession move like wildfire from advanced economies through developing economies, move with unprecedented speed, severity and of course brutality," Swan told reporters.
"The impact of this severe global contraction has had a brutal impact on growth, employment and budget revenue," he said as he delivered his second budget, which lays the foundations for Prime Minister Kevin Rudd's next election, due in late 2010.
The budget cut benefits for the wealthy but cushioned middle-class and swing voters, who are likely to decide the next election.
It contained no new dramatic stimulus, but Rudd's centre-left government is already riding high after giving away $AU52 billion in stimulus payments in the past eight months.
Swan forecast a fiscal deficit of $AU53.1 billion in the year to June 30, 2010, equivalent to 4.5% of gross domestic product, the largest in Australia's history. But it remains less than half the level of deficits in the United States and Great Britain.
Australia's fiscal deficit will rise to $AU56 billion in 2010/11, or 4.6% of GDP, before an expected economic recovery begins to restore government finances.
The deficit will be a blow to Australians conditioned to a decade of budget surpluses and tax cuts in more recent years.
But Swan and Rudd will try to use the forecasts for a 2010/11 recovery to highlight their credentials as economic managers and portray themselves as economic saviours.
Rudd, whose Labor Party won office in late 2007, remains well ahead in opinion polls, with voters generally in favour of his economic management so far during the global financial crisis.
Rudd, however, could have the option of calling an early election by the end of 2009 if the conservative opposition in parliament's upper house block his reform agenda, which includes a controversial plans to combat global warming.
Economy to contract
The budget forecast the economy to contract 0.5% in 2009/10 before bouncing back to 2.25% growth in 2010/11, with unemployment to rise to 8.25% by June 2010 from 5.4% now.
Unemployment was forecast to peak at 8.5% by June 2011, with Australia set to have one million unemployed.
But net government debt is also due to rise from -0.4% of GDP in 2008/09 to a record 13.8% of GDP by 2013/14, falling back to 3.7% of GDP by 2019/20.
That compares to Japan's existing net debt of nearly 90% of GDP, and 46% in the United States.
The budget contained few surprises, with a comprehensive series of media leaks over the past month reporting many of the key policy measures.
The budget centrepiece was a $AU22 billion programme of spending on major infrastructure projects over four years, brought forward from money already set aside, to pay for new hospitals, road, rail and ports projects around the country.
Pensions boost
The government stood by its commitment to increase pensions by $AU32.49 a week, but used the cover of the global downturn and looming recession to claw back benefits extended to high-income earners during the Australia's resources-fuelled boom.
According to The Australian, the pension age will be lifted from 65 in 2017 to 67 by 2023.
From July 2010, high-income earners will be cut out of the 30% subsidy on private health-insurance they do not have private health cover.
The government will curb tax breaks on contributions to retirment savings acounts, havling the amount of savings contributions eligible for concessional tax rates.
The government also cut its skilled-immigrant intake by a further 7,000 to 108,000 in 2009/10, due to rising unemployment and falling demand for labour. Overall, the intake has been cut by 20% from 2008/09.
Swan said the budget would only bounce back into surplus by 2015/16 when growth and revenues would recover.
