Australia to Further Boost Economy If Growth Slumps, Swan Says

Bloomberg
Australia to Further Boost Economy If Growth Slumps, Swan Says
By Gemma Daley

Nov. 30 (Bloomberg) -- Australia’s government will follow up yesterday’s A$15.1 billion ($10 billion) spending package with additional stimulus measures if growth slows more than expected, Treasurer Wayne Swan said.

National and state leaders yesterday agreed on a five-year funding plan focused on education and health, following up A$10.4 billion in grants announced last month, as the country seeks to cope with the global financial crisis.

“It does stimulate the economy; it does create 133,000 jobs over five years,” Swan told Nine Network television. “We will do whatever we need to do in the next period to stimulate the economy should growth slow more than has been expected, or would have been expected some months ago.”

Prime Minister Kevin Rudd announced the spending plan, forecast to create 133,000 jobs, after annual talks with state leaders yesterday on national government funding for the states. The package adds to A$332 billion of spending forecast for this and the next three financial years.

Swan said he doesn’t expect the financial crisis to last five years and the government will accept a budget deficit if needed for extra economic stimulus. Australia’s budget was last in deficit in the year ended June 2002.

“If growth were to slow further than expected, then a temporary deficit would be the responsible thing to do to invest in the strength of the economy and to create jobs,” Swan said. “At the moment we are forecasting a modest budget surplus.”

Surplus Shrinks

Swan on Nov. 5 slashed the forecast budget surplus by 75 percent, citing the slowest economic growth in eight years. Reserve Bank Governor Glenn Stevens said Nov. 19 he would be comfortable if state and federal governments increased public spending, “even if that involves some prudent borrowing.”

Australia would join other developed nations forecasting budget deficits in 2009. The U.S. government shortfall may top $1 trillion next year and spending in the U.K. will push the deficit to 118 billion pounds ($181 billion) in the year starting April 1.

“The global financial crisis is still unfolding,” Deputy Prime Minister Julia Gillard told Channel Ten’s Meet The Press program today. “Its effects on our economy are still unfolding.”

The Reserve Bank of Australia this month reduced its 2008 economic growth forecast to 1.5 percent from 2 percent. The central bank has slashed its benchmark interest rate 2 percentage points since September to 5.25 percent.

Australia’s leading economic index fell in September, signaling the nation may slip into a recession, ending 17 straight years of economic expansion, Westpac Banking Corp. and the Melbourne Institute said on Nov. 19.

Australian business confidence plunged in October to a record low, consumers were pessimistic in November for a 10th straight month and house prices dropped in the third quarter by the most since 1978.

Last Updated: November 29, 2008 20:02 EST