Australian budget deficit at A$58 billion; sharp recovery expected by 2015

Australian treasurer Wayne Swan presented his $57.6 billion deficit budget yesterday night after predicting a $22 billion surplus only 12 months ago.

For 2009-10, revenue is expected to fall to $290.6 billion, as expenses rise to $338.2 million.

The treasury has also forecast a $57 billion deficit in 2010-11, followed by $44.5 billion and $28 billion, before a projected return to surplus in 2015-16.

National net debt is expected to touch $188 billion in 2012-13, or 13.6 per cent of gross domestic product (GDP).

"This budget keeps stimulus and investment flowing to support the economy in tough times, but locks in the savings that will get us back to surplus when the tough times have passed," Swan told reporters.

Australians must work hard and for longer if the country is to overcome the impacts of the global recession, he added.

He maintained the government's $22 billion spending on infrastructure and clean energy.

Speaking at a Labor budget dinner at parliament house on Tuesday night, Prime Minister Kevin Rudd said the budget would support jobs now while putting in place the infrastructure of the future.

To help pay for its spending promises, the government will lift the retirement age to 67 progressively every six months from 2017. But people already on the aged pension have won a $32.49 rise in weekly payments for singles and $10.14 for couples. 
 
Swan also plans to save $22.6 billion over four years, including a rollback of the private health insurance rebate for high and middle-income earners and a freeze on family tax benefits.

"I understand that this is not going to be popular, but this Budget is not about being popular," Swan said.

Swan told Macquarie Radio later he did not believe the government had overplayed its hand in stimulating the economy, adding that the stimulus measures had been applied when they were necessary and were now being wound down.
 
''What we are doing is withdrawing that stimulus and then putting in place savings to bring the budget back to surplus,'' he said. 
 
The treasurer said: "Everybody has been asked to do their bit, especially those who have done well and can afford to contribute a bit more than those doing it tough." 
 
Economy to rebound by 2011-12

He said the economy was forecast to contract by 0.5 per cent in the next financial year, but this was much less than in other developed nations.

He, however, denounced the International Monetary Fund's gloomy forecast on the world economy saying that global growth is expected to touch 4.5 per cent a year from 2011-12.

"The economy will recover strongly and ... Australia will be as well placed as any nation to grasp the opportunities presented by that recovery," Swan said in his budget speech.

The IMF thinks growth will reach only 1.9 per cent next year and will remain well below its long-term trend rate.

The IMF's view was supported by the Reserve Bank of Australia (RBA) in its quarterly economic review last week. The RBA said world growth would be ''relatively subdued'' next year and 2011.

It said this was consistent with the experience of past financial crises, and reflected the budget pressures in many countries, which would require cutbacks as the recovery took hold.

''The global recession of 2009 looms as not only the most synchronised, but also the most severe in living memory," the Treasury said.

However, the government expects the recession to be followed by one year of slow growth (2.25 per cent) and then a rapid recovery, arguing it will be a typical recovery.

The government expects that the recession will leave business with a lot of spare capacity, particularly given the huge investment in the resource industry over the past five years.

"This will enable resource exports to respond quickly as global demand recovers, supporting GDP growth," the Budget papers say.

Unemployment to soar

Driven by the downturn in economy, the unemployment rate is expected to rise to a peak of 8.5 per cent by the June quarter of 2011 from 5.4 per cent now.

That implies almost a million people will be officially unemployed as hundreds of thousands lose their jobs.

"The effects of the global financial crisis have surged through all advanced economies, destroying wealth, sapping confidence, and leading to a collapse in global trade," the Treasury said.

Treasury estimated the Government's stimulus packages would lift growth by 2.75 per cent in 2009-10 and 1.5 per cent in 2010-11, supporting up to 210,000 jobs.

It said the unemployment would have peaked at 10 per cent had the unprecedented spending surge not taken place.