Crikey political editor Bernard Keane has spent the morning pouring over the details of the Federal Government’s new stimulus package in a special Parliamentary lock-up.
The Government’s second attempt at breathing life into the Australian economy is a two-stage employment and demand stimulus package that will cost $41.5 billion. Coupled with the massive negative impact of the global recession on tax receipts, the package will send the budget into a new deficit record of $22.5 billion this year and over $35 billion in 2009-10.
The first stage of the package is an immediate injection of $11 billion into the economy, to start rolling out in March, with handouts to taxpayers on less than $100,000, single-income families and a bonus for families with school age children.
The handout repeats the approach of the Government’s December cash injection, but this time targeting low and middle-income earners, who’ll receive more than $8 billion. Depending on their circumstances and number of children, some families might reap several thousand dollars in Government cheques in coming months. There’ll also be a half-billion dollar bonus for students to meet education costs and to encourage unemployed people back into training.
The second stage is a jobs package rolling out in 2009-10 ($15.7 billion) and 2010-11 ($9.8 billion). The headline component is a massive $14 billion infrastructure program for Australian schools to upgrade libraries, halls, laboratories and enable general maintenance. There will also be 20,000 new homes funded via a $6 billion housing package, the $3 billion insulation program already leaked overnight, and a temporary investment tax break for small businesses.
Small business will also receive a tax break in the package, with companies purchasing eligible assets to receive a 30% investment tax break.
The Government is counting on generating 90,000 jobs from the package between now and 2011. Treasury remains convinced Australia will avoid a recession on an annualised basis, predicting growth of 1% this year and 0.34% in 2009-10, with unemployment only rising to 7% by June 2010. Part of the reason is the strong rural performance, with farm product tipped to grow 11% this year and 5% the next.
As usual, however, the lack of quarterly forecasting means the figures allow the possibility of a recession during part of the year.
It was only in November that Treasury forecast a $5.4 billion surplus. Since then, tax has fallen and expenditures have risen by nearly $10 billion and Government decisions, including this year’s components of the new package and other new funding such as COAG, have added a further $18 billion to the deficit. There’s a far bigger turnaround next year when the budget moves from $3.9 billion surplus – always a fairly notional figure – to a $35.5 billion deficit.
Given the optimistic domestic growth and employment scenarios used by Treasury, that figure could turn out to be far higher. Unemployment of 8% or 9% would generate “parameter variations” in the billions.
Treasury has moved to a more mainstream line on international growth – 1.75% contraction in the US and Europe next year, 2.5% contraction in Japan, and only 6.5% in China. This will lead to a collapse in Australia’s terms of trade of nearly 13% next year, with the current account deficit rising to 5.5% of GDP.
As bad as all this sounds, Australia will be doing well to achieve these numbers.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
Comments