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Treasurer Wayne Swan said the global downturn forced the government to write down revenues by A$23 billion ($17.6 billion) in the current year, its biggest hit to income since the Great Depression, and by A$210 billion over four years.

“We’ve seen the global recession move like wildfire from advanced economies through stgeloping economies, move with unprecedented speed, severity and of course brutality,” Swan told reporters. “The impact of this severe global contraction has had a brutal impact on growth, employment and budget revenue,” he said as he delivered his second budget, which lays the foundations for Prime Minister Kevin Rudd’s next election, due in late 2010.

The budget hit the wealthy but cushioned middle-class and swing voters, who are likely to decide the next election.

It contained no new dramatic stimulus, but Rudd’s centre-left government is already riding high after giving away A$52 billion in stimulus payments in the past eight months.

Swan forecast a fiscal deficit of A$53.1 billion in the year to June 30, 2010, or 4.5 percent of gross domestic product, the largest in Australia’s history. But it remains les than half the deficit percentages in the United States and Great Britain.

Australia’s fiscal deficit will rise to A$56 billion in 2010/11, or 4.6 percent of GDP, before an expected economic recovery begins to restore government finances.

The numbers were roughly in line with expectations and credit rating agency Standard & Poor’s said Australia would keep its AAA rating, though one economist said the government still faced a long-term challenge to repair its finances.

Swan and Rudd will try to use the forecasts for a 2010/11 recovery to highlight their credentials as economic managers and portray themselves as economic saviours.

Rudd, whose Labor Party won office in late 2007, remains well ahead in opinion polls, with voters generally in favour of his economic management so far during the global financial crisis.

Rudd, however, could have the option of calling an early election by the end of 2009 if the conservative opposition in parliament’s upper house block his reform agenda, which includes a controversial plan to combat global warming.

Economy To Contract

The budget forecast the economy to shrink 0.5 percent in 2009/10 before bouncing back to 2.25 percent growth in 2010/11, with unemployment to rise to 8.25 percent by June 2010 from 5.4 percent now.

Unemployment was forecast to peak at 8.5 percent by June 2011, with Australia set to have one million unemployed.

But net government debt is also due to balloon rise from a net cash position in 2008/09 to a record 13.8 percent of GDP by 2013/14, falling back to 3.7 percent of GDP by 2019/20.

That compares to Japan’s existing net debt of nearly 90 percent of GDP, and 46 percent in the United States.

The budget contained few surprises, with many key policy measures already leaked in the media. Business groups broadly welcomed the budget, though influential Greens senators said they wanted more money for the environment and the unemployed.


Australian Prime Minister Kevin Rudd has given himself the option of an early election by handing down a national budget that hits the rich but protects middle-class voters likely to decide his government’s fate.

Rudd has publicly said he wants to serve a full term, with elections due in late 2010, but he will want the option of an election as early as late 2009 if the economic outlook sours and voters continue to shun the conservative opposition.

Rudd was first elected to office in late 2007 and continues to dominate in the opinion polls, with voters apathetic about the conservative Liberal Party opposition which historically outpolls the leftist Labor Party when it comes to economic management.

Rudd and Treasurer Wayne Swan had warned of a horror budget, but in reality it contained little pain for most Australians.

It slugs the wealthy but protects low and middle-income families – the voters Rudd needs to stay in power.

Those most likely to be upset by the budget are high-income families, who are less likely to be Labor backers, although the budget takes a risk by offering no extra benefits for the unemployed or single parents on welfare.

Low and middle-income families in a string of key constituencies in the suburbs of Australia’s major cities, and pensioners, are largely protected from any short-term pain, helping to shield Rudd from any significant political fallout.

The biggest danger for Rudd in the budget, however, is the rising net government debt, which is forecast to

remain high for the next decade. Rudd will need to pass new laws to increase the government’s borrowing limits, setting up a showdown in parliament’s upper house Senate where the debt-averse conservatives hold the largest voting bloc and the government needs support of minor parties.

A political showdown over high debt may resonate in a country where 80 percent of voters rate economic management as their main concern, and may bolster the stocks of opposition leader Malcolm Turnbull as the recession deepens and debt mounts.

Most political analysts believe Rudd will serve out a full three-year term, as Australian voters traditionally punish prime ministers who call early polls. But the temptation will grow if opinion polls continue to show the conservatives struggling for support and Rudd maintaining record approval ratings.


Following are key measures announced in the Australian government’s 2009/10 budget on Tuesday, as well as listed Australian stocks likely to be affected by them.

Infrastructure & First-Home-Buyer Assistance

Spending of A$22 billion port, rail and road improvements, funded through three existing funds for health, education and building created in last year’s budget. In addition, the government’s recently announced increase in cash grants for first-home-buyers will be extended for three months to Sept 30, but then halved until Dec 31.


Likely to help engineering firms like Leighton Holdings, United Group  and Downer EDI, and also residential stgelopers like Stockland Group, Lend Lease Corp, Mirvac Group and Australand Property Group. Building-materials firms Boral Ltd, CSR Ltd, Fletcher Building and James Hardie Industries NV should also benefit.

Retirement Savings

The government will restrict the tax break currently given to people who pay a portion of their salary  direct into retirement savings. The amount of savings contributions eligible for the concession will be halved  to A$25,000 a year for people aged under 50 and halved to A$50,000 a year for those over 50.


Likely to reduce in-flows into private pension funds, which could hit top fund managers AMP Ltd and AXA Asia Pacific Ltd and listed  funds like Argo Investments Ltd and Perpetual Ltd.

Private Health – Insurance Subsidies Cut

From July 1, 2010, tax subsidies for private health insurance will now be rationed according to income. Those who earn more than A$120,000 a year will not get any of the subsidy, which amounts to a 30 percent  discount on health insurance premiums.

For those earning A$75,000-A$90,000 and aged below 65, the subsidy will  be cut to 20 percent. For those earning A$90,000-A$120,000 and aged below 65, the subsidy will be cut to 10  percent. Anticipating an exodus out of private health cover, the government also raised a special tax that is  paid by wealthy people who choose to go without private cover and rely instead on the state health-insurance  system. This special tax will rise to 1.5 percent of income.


Private health insurers like NIB may be forced to raise premiums, which could  then discourage members further. Morgan Stanley has estimated that means-testing the 30  percent subsidy would put roughly 4 percent of all private health insurance policies at risk. This estimate  was based on a cut-off income of A$150,000 a year. Private-hospital operators such as Ramsay Health Care Ltd and

Healthscope Ltd could also be hurt.