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Australia plans $26B stimulus package

(Agencies)
Updated: 2009-02-03 21:27

CANBERRA, Australia -- Australia's leader unveiled a new stimulus package Tuesday to try to shield the economy from the global downturn, promising 42 billion Australian dollars ($26 billion) in spending that will send the budget into the red for the first time in nearly a decade.

Australia's Prime Minister Kevin Rudd, center, speaks while Finance Minister Lindsay Tanner, left, and Treasurer Wayne Swan, right, look on during a press conference to announce the second economic stimulus package at Parliament House, in Canberra Australia, Tuesday Feb. 3, 2009. [Agencies]

The package comes on top of one launched late last year worth A$10.4 billion ($7.4 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 mid-last year.

Two hours after Prime Minister Kevin Rudd's stimulus announcement, the central bank slashed the benchmark cash rate by a full percentage point to 3.25 percent in another bid to reinvigorate the stagnating economy. It was the lowest level since the Reserve Bank of Australia took control of monetary policy 19 years ago, and the lowest money market rate since 1964.

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 ($14.2 billion) deficit, 1.9 percent of gross domestic product, for the current fiscal year ending 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 ($20 billion) in the 2010-11 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."

The spending measures need parliament's approval. Supporting legislation will be introduced to the Parliament on Wednesday.

The government on Tuesday raised its jobless forecast to 7 percent for the year ending June 30, 2010, from the current rate of 4.5 percent.

Last November, the government said it planned a modest surplus of A$5.4 billion ($3.4 billion) for the current fiscal year. On Monday, Rudd said sinking tax revenue from the global slowdown will blow a A$115 billion ($73 billion) hole in the Australian budget.

The government had already injected A$36 billion ($23 billion) into the economy since September, including the A$10.4 billion ($7.4 billion) package of cash bonuses in welfare checks, funds for residential mortgage backed securities, car industry assistance plus infrastructure projects.

Late last year, the International Monetary Fund predicted Australia would be one of the few developed countries to avoid recession in 2009, but on Saturday it said Australia's economy was likely to contract by 0.2 percent, delivering Australia's first recession since 1991.