Jobless to soar as budget sinks into deficit

Submitted 4/02/2009

AAP

The unemployment rate is expected to soar to 7 per cent as the economy feels the heat from the global recession, the federal government warns.

In what can only be described as a mini-budget, the government today launched a further $42 billion package to try to stave off a deep economic recession in Australia, while confirming the budget will be in deficit for at least the next three years.

The government also updated last November's Mid-Year Economic and Fiscal Outlook (MYEFO) today, slashing its economic and employment growth forecasts.

The budget is now expected to sink into a $22.5 billion deficit in the 2008/09 financial year, a massive deterioration from the $5.4 billion surplus projected in MYEFO, and deepening into deficits of more than $30 billion in the following two years.

Gross domestic product (GDP) is now expected to grow by just 1.0 per cent in the 2008/09 and by only 0.75 per cent the following year, compared with respective forecasts of 2.0 per cent and 2.25 per cent made in November.

More people are now expected to lose their job as the economic downturn savages business, with the unemployment rate now forecast to rise to 5.5 per cent in 2008-09 and 7.0 per cent in 2009-10.

In November, the government had forecast respective jobless rates of 5.0 and 5.75 per cent.

The unemployment rate was 4.5 per cent in December.

The latest stimulus package - Nation Building and Jobs plan - will invest $28.8 billion in schools, housing and roads, and hand out $12.7 billion in payments to low- and middle-income earners, while aiming to support 90,000 jobs during the next two years.

It comes on top of the $10.4 billion stimulus package announced last October.

The mini-budget comes as the Reserve Bank of Australia (RBA) holds its first board meeting of the year. The annouced cut took the cash rate to 3.25 per cent, the lowest level in 45 years.

The federal government's $42 billion Nation Building and Jobs plan is aimed at stimulating the economy and supporting up to 90,000 jobs during the next two years.

Key points of the mini-budget:

* $14.7 billion to be invested in school infrastructure and maintenance and bringing forward funding for trade training centres;

* $6.6 billion to increase the national stock of public and community housing by about 20,000 new homes;

* $3.9 billion to provide free insulation to 2.7 million homes and solar hot water rebates;

* $890 million to fix regional roads and blackspots, to install railway boom gates and for regional and local government infrastructure;

* $2.7 billion small and general business tax break to provide deductions for some equipment purchases before the end of June 2009;

* $12.7 billion for immediate one-off payments to working Australians, families with school-age children, farmers, single income families and for those undergoing training.