Australia unveils $26.5 bln second stimulus

CANBERRA (Reuters) - Australia’s government unveiled a A$42 billion ($26.5 billion) second stimulus Tuesday in a bid to buttress the rapidly cooling economy from the global slowdown, and halved its 2008/09 growth forecast to 1.0 percent.

The plan includes A$28.8 billion for infrastructure, schools and housing, as well as A$12.7 billion cash payments for low and mid-income earners to be paid in March, 2009.

Australian Prime Minister Kevin Rudd said the stimulus package would stave off recession in the export-driven A$1 trillion economy, but plunge the government budget into deficit.

“This plan today, as part of a broad strategy on which we embarked last year, provides a basis to see Australia through this economic crisis,” Rudd told a news conference.

The announcement coincides with a policy meeting of the Reserve Bank of Australia, expected to slash rates by 100 basis points later Tuesday after it has already shaved 3 percentage points from its key cash rate, taking it to a six-year low of 4.25 percent.

Australia’s stimulus spending announced since September 2008 now totals A$78 billion and adds to a raft of packages developed in major economies, including $819 billion in the United States and $586 billion by China.

Rudd said the economic future remained uncertain and did not rule out further fiscal stimulus.

“The government remains determined to take what further measures are necessary to continue to support growth and jobs and the stability of financial markets into the future,” he said.

The latest stimulus would ensure growth was 0.5 percentage point higher in 2008/09 and giving a boost of between 0.75-1 percentage point the year after, said the government.

But the spending and deteriorating global financial conditions meant the government budget would fall into deficit of A$22.5 billion in 2008/09, or 1.9 percent of GDP, and A$35 billion in deficit, or 2.9 percent of GDP, the following year.

Unemployment would also hit 7 percent in mid-2010, up from 5.75 percent previously forecast in November.

If the stimulus moves fail to protect the Australian economy from the worst of the financial crisis, and save jobs, Rudd faces the risk of losing the next election in 2010 as many voters will accuse him of economic mismanagement, say political analysts.

“Rolling this out is going to take a feat of national organization and planning we haven’t seen since the 1940s,” said Rudd.

In October 2008, Rudd announced a A$10.4 billion package, mostly in pre-Christmas cash payments, aimed at helping the elderly, poorer families and first-home buyers.

Other measures include A$8 billion to fund purchases of residential mortgage backed securities after global lines of credit dried up, and A$6.2 billion in car industry assistance to help protect jobs and develop environmentally-friendly vehicles.

In September 2008 the government announced it would guarantee public bank deposits and wholesale funding to banks.

“All these are large amounts of expenditure for infrastructure over the next three years. That is extremely positive as most of the money will be spent domestically. The cash handouts will also be good for consumption,” said Michael Workman, a senior economist at Commonwealth Bank of Australia.


Reporting by Rob Taylor, editing by Michael Perry