CANBERRA, May 13 (Reuters) - Australian Prime Minister Kevin Rudd on Wednesday defended economic forecasts and record deficits in his government's second budget as some economists warned that his exit strategy from deficit was far from convincing.
Treasurer Wayne Swan on Tuesday unveiled a budget that sets Australia up for a decade of debt, with a fiscal deficit of $32.9 billion ($25 billion) this year, rising to A$53.1 billion in 2009-10 amid recession and rising unemployment.
While ratings agencies reaffirmed Australia's AAA credit rating after the statement, economic commentators and business groups warned a return to surplus by 2015-16, as planned, would be difficult with a budget that delays hard choices.
"We have a positive plan for the future, we have outlined it, we believe it is sustainable, it is the right course of action," Rudd told state radio on Wednesday.
The centre-left government faces an election in late 2010 and the budget, by targeting mostly rich voters who make up the rival conservative heartland, sets Rudd up to possibly call an early poll and to skirt the peak of recession next year.
But in opting to ramp up net debt to 4.6 percent of GDP by 2010-11, Rudd and Swan risk angering Australians, who two decades ago were warned by the then government that the nation risked becoming a "banana republic" unless it tackled its debt problem.
Australian governments have spent the past 10 years bringing net government debt down from double-digit percentages of GDP.
Rudd defended Treasury Department forecasts for a recovery tied to growth rates of 4.5 percent by 2011-12, as credibly based on recovery patterns in previous recessions in Australia.
Swan said suggestions the forecasts were too optimistic were "silly" and the leftist government had taken hard decisions, including raising the male pension age to 67 from 2017.
"I can't for the life of me understand some of the commentary that is claiming that they are excessively optimistic," Swan said.
"Tough Love," said the budget headline in the mass-selling Herald Sun in Melbourne the day after the budget, with the newspaper warning Australians would have to work harder for longer and survive on less government support.
"Here comes hard Labor," said the rival Age, while the Australian Financial Review said "Swan buys a lifeline", pointing to the cutting of taxation and pension "perks" for the rich, which would add A$48 billion to government coffers.
But The Sydney Morning Herald said Rudd had "lost his boldness" in deferring hard choices to years in the future, targeting the rich and being slow and timid with plans to bring the budget back under control again.
The rival Australian newspaper said the country was required to put on a tighter fiscal straitjacket for longer than anyone could remember, but the government did not deliver.
"The world faces its worst economic contraction since the Great Depression but Wayne Swan is a convinced optimist who has produced a budget for optimists," the paper's veteran columnist, Paul Kelly, wrote.
"If Australia survives the current global recession delivering only the modest savings identified yesterday, then miracle will be a better label," Kelly said.
Australia's stockmarket was expected to open flat to slightly higher on Wednesday with no major surprises in the budget, although five-year government bond prices were a tad softer.
($1=1.309 Australian Dollar) (Reporting by Rob Taylor; Editing by Mark Bendeich)