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 (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 (US$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 per cent 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.
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 per cent -- 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 (US$14.2 billion) deficit -- 1.9 per cent 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 per cent in the current fiscal year. The plan also aims to turn an economic contraction in the following year to 0.75 per cent 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 (US$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."
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 metric tons (54.5 million U.S. tons) 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 will 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 (US$600) tax bonuses or grants.
The government will also spend on infrastructure, while also encouraging business to invest in expansion through an investment tax break.
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 per cent for the year ending June 30, 2010, from the current rate of 4.5 per cent.
Last November, the government said it planned a modest surplus of A$5.4 billion (US$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 (US$73 billion) hole in the Australian budget.
The government had already injected A$36 billion (US$23 billion) into the economy since September, including the A$10.4 billion (US$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 per cent, delivering Australia's first recession since 1991.
