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Source: www.asiaecon.org |

AUSTRALIA UNVEILS A $26 BILLION STIMULUS PACKAGE.


Australia has launched a $26 billion stimulus package on Tuesday, as it aims to cushion the severe impacts of the economic crisis in the country's slumping economy. The package will focus on supporting the nation's jobs and infrastructure development. It is the second stimulus package launched by the Australian government since the end of 2008.  The launching of a second package underscores the gravity of which the Australian economy currently finds itself.




Australia has launched a $26 billion stimulus package on Tuesday, as it aims to cushion the severe impacts of the economic crisis in the country’s slumping economy. The package will focus on supporting the nation’s jobs and infrastructure development. It is the second stimulus package launched by the Australian government since the end of 2008.  The launching of a second package underscores the gravity of which the Australian economy currently finds itself.

After enjoying more than a decade of vibrant economic growth fueled by foreign demands for its large supplies of natural resources such as iron ore and coal, Australia is now facing staggering economic growth.  Economists suggest that the country might be heading towards a recession, while the IMF has predicted a 0.2% economic contraction in 2009 if aggressive measures are not taken soon.

Meanwhile, the government has cut its 2008-2009  economic growth forecast in half, to 1%, from previous estimates made three months ago. Similarly, predicted GDP growth for 2010 was cut from 2.25% to a predicted 0.75%.

The unemployment rate is expected to reach 7.5% in 2009-2010 from 4.5% in December. Additionally, the Australian government foresees a budget deficit of  $A22.5 million, opposed to the May forecast of a A$21.7 billion  surplus. 

The previous $10.4 billion package released in December, was aimed at boosting consumer spending  by increasing liquidity and raising pensions. While the package showed positive results as private spending received a boost in December, the country’s plunging economy and flagging real estate market reflect the need for more aggressive and drastic moves in order to avert a possible recession in the upcoming year.

The latest $26 billion package is equivalent to 3.5% of the country’s GDP and  will be implemented over the next three years until June 2012. It will aim to invest in infrastructure, with over $A28.8 billion  expected to be spent on schools, housing, and roads over the next four years. The government also plans to invest in environmentally friendly projects.

Tax breaks for businesses will also be included in an effort to promote production and reduce unemployment. The stimulus package should help to support about 90,000 jobs. Cash handouts will also be offered to eligible low income workers, single income families and drought affected farmers, supporting up to 8.7 million Australians.

In addition,  Australia’s Central bank has slashed interest raters by one percent to 3.25%, the lowest in more than 45 years. This latest move has shown that monetary and fiscal policy are currently working together in a timely manner.

While the combination of a stimulus package and monetary policies would alleviate the strains of the current economical crisis, Australia might still be headed towards a grim long-term future.

Australia must be very careful not to overspend, as it tries to ameliorate the crisis, in order to avoid endangering the country’s long term sustainability of public finances. “While all efforts are currently focused and rightly so on containing the crisis and supporting economic activity, the exceptional measures introduced over the past four months will need to be withdrawn as soon as the economic recovery is entrenched,” Organization for Economic Cooperation and Development’s deputy secretary general, Aart de Geus, said.

In fact, tax revenues are predicted to be $72.6 billion less than previously forecast,  pushing the country’s deficit close to $14.2 billion,-1.9% of the country’s GDP-  for the current fiscal year ending in June. This will be Australia’s first budget deficit since 2001.

“There is no silver bullet with any of this. I have not the slightest intention of misleading the Australian public on this,” said Australian Prime Minister Rudd, who faces re-election in late 2010. “It does not represent the removal of the problem. It is our best effort to reduce the problem.”



Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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