Sydney: The Australian government launched a AUS$42 billion (US$26 billion) stimulus package on Tuesday as the global financial crisis dragged the economy towards recession.
Prime Minister Kevin Rudd said the package was aimed at nation building and supporting jobs “in the face of the unfolding national and international economic emergency.”
The government faced a “stark choice - to act or fold its arms and let the free market rip,” the centre-left Labor Party leader said. “The government has resolved to act and will continue to act.”
The stimulus package includes spending of AUS$28.8 billion on schools, housing and roads, tax breaks for small business and cash handouts of AUS$12.7 billion to low- and middle-income earners, farmers and students.
“No country will escape the impacts of the global recession, which is causing falls in growth, job losses and budget deficits right across the world,” Treasurer Wayne Swan said in a statement.
The government slashed its economic growth forecast by half for the current financial year and upped its estimate of job losses while warning that the budget would plunge AUS$22.5 billion into deficit.
Last May the budget had been forecast to be AUS$21.7 billion dollars in surplus.
Gross domestic product growth is now expected to be 1.0% in 2008/09 and 0.75% the following year, compared with respective forecasts of 2% and 2.25% made just three months ago.
The unemployment rate is expected to surge to 7% in 2009/10 from 4.5% in December, the government said, in what amounted to a mini-budget announcement ahead of the full budget due in May.
The latest move follows a stimulus package which pumped AUS$10.4 billion into the economy in December to boost consumer spending.
The International Monetary Fund predicted last week that the Australian economy would contract by 0.2% in 2009 if no further measures were taken.
Preparing the way for the budget deficit announcement, Rudd on Monday said the global economic crisis and China’s slowdown would punch a AUS$$115 billion hole in tax receipts over the next four years.
Demand in China and other Asian countries for Australian resources such as coal and iron ore had underpinned an economic boom for a decade, allowing a long series of budget surpluses.
Further stimulus for the economy was expected to come in the form of an interest rate cut later Tuesday by the central bank after its monthly board meeting.