Australia unveils $26.5-billion new economic stimulus

Australian prime minister Kevin Rudd today unveiled a new economic stimulus plan promising  A$42 billion (US$26.5 billion) in additional spending to shield the economy from the global downturn.

The package, coming on top of last year's extra spending of A$10.4 billion (US$7.4 billion), will send the Australian federal budget into the red for the first time in nearly a decade.

The global economic downturn has hurt Australia's resources-based economy more as commodity prices plummeted in the wake of declining global economic activity.

Of the A$ 42 billion outlay, A$28.8 billion would be invested in schools, housing and roads, while A$12.7 billion will be used to provide cash support for lower-income families, the country's treasurer Wayne Swan said.

Australia's central bank also cut interest rates to 3.25 per cent - the lowest level in 45 years – as the government halved its economic growth forecast for 2008-09 to 1 per cent from 2 per cent projected earlier.

"To support jobs in the middle of a severe global recession, the government must stimulate the economy in the most immediate manner possible," prime minister Rudd said.

The plan aimed to support 90,000 jobs while boosting economic growth by half a percentage point to 1 per cent in the current fiscal and to 0.75 per cent in the following year, government documents showed.

"The government remains determined to take whatever further measures are necessary," he added.

The new stimulus package, to be implemented over four years, include building thousands of new houses and school rooms.

It will also include environment-friendly measures such as providing householders with free home roof insulation. The government also plans to raise the existing subsidy to households for installing solar hot water systems.

The plan also includes building 20,000 houses for military personnel and low-income groups and upgrading of Australia's 9,540 school buildings. Besides, the government will spend on infrastructure and support private investment through tax breaks.

The government expects the 2.7 million free ceiling insulations to reduce household power bills and cut greenhouse gas emissions by 49.4 million tonnes by 2020, documents showed.

The tax breaks or grants of an average A$950 (US$600) are expected to benefit more than half of Australia's population of 21 million.

The package, however, needs parliament's approval and fresh legislation will be introduced in parliament tomorrow.

The package will raise Australia's budget deficit into a A$22.5 billion (US$14.2 billion) - 1.9 per cent of gross domestic product - for the current fiscal ending 30 June 2009, the prime minister said.