Australia’s leader unveiled a new stimulus package yesterday to try to shield the economy from the global downturn, promising A$42 billion (US$26 billion) in spending that will send the budget into the red for the first time in nearly a decade.
The package comes on top of one launched late last year worth A$10.4 billion and underscores the threat the downturn poses to Australia’s resources-based economy, which has shuddered to a near halt since the worldwide financial turmoil began in the middle of last year.
Two hours after Australian Prime Minister Kevin Rudd’s stimulus announcement, the central bank slashed the benchmark cash rate by a full percentage point to 3.25 percent — its lowest level in two decades — in another bid to reinvigorate the stagnating economy.
The new initiatives, spread over four years, include building thousands of new houses and school rooms, and environmentally friendly measures such as providing householders with free home roof insulation.
The spending will plunge the annual budget into a A$22.5 billion deficit — 1.9 percent of GDP — for the current fiscal year ending on June 30, the prime minister said.
“Nobody likes being in deficit and I don’t like being in deficit at all,” Rudd told reporters. “This is not a question of choice. This is what we are required to do.”
Doing nothing would result in even more job losses, Rudd said.
He said the plan aimed to support 90,000 jobs — through a combination of creating new positions and saving existing jobs — while boosting economic growth by half a percentage point to 1 percent in the current fiscal year. The plan also aims to turn an economic contraction in the following year to 0.75 percent growth, government documents said.
Rudd described the deficit as temporary, despite the Treasury’s forecast that it would blow out to A$31.5 billion in the 2010 to 2011 fiscal year.
“This government will never haul up the white flag on the inevitability of recession,” he said. “There is no guarantee of success, but we will throw everything at this because we believe it is important for confidence and jobs that we do so.”
By providing free ceiling insulation to 2.7 million Australian homes, the government plans to reduce household power bills as well as Australia’s greenhouse gas emissions.
The scheme would save 49.4 million tones of greenhouse gas emissions that are blamed for dangerous global warming by 2020, documents said. An existing subsidy to householders for installing solar hot water systems would also be increased.
The government plans to build 20,000 houses for military personnel and low-income earners and every one of Australia’s 9,540 schools would get a new or upgraded building.
In a move aimed at getting Australians to spend some money, more than half Australia’s population of 21 million will be eligible for A$950 tax bonuses or grants.
The government will also spend on infrastructure, while also encouraging business to invest in expansion through an investment tax break.