By James Grubel
CANBERRA, Feb 2 (Reuters) - Australia's political year kicks off when parliament resumes on Tuesday, with Prime Minister Kevin Rudd struggling to prevent a recession as the global crisis and a slowing China impact heavily on the export-driven economy.
Rudd was elected in November 2007 with a promise to be a conservative economic manager and protect budget surpluses, but he now faces a budget deficit with revenues savaged and the need to spend money to support jobs and stimulate the economy.
"We are going to move heaven and earth to try and support growth in the economy, to try and keep growth positive," Rudd told reporters in Canberra on Monday.
The next elections are due at the end of 2010 and Rudd and his Labor government enjoy strong support in opinion polls, but the global financial crisis has shifted the focus from his leftist social agenda to his ability to manage a troubled economy.
The political risk Rudd faces is that if he fails to protect the economy from the worst of the financial crisis he will be viewed by his opponents and many voters as a poor economic manager -- a label used to defeat previous Labor leaders.
Australia's budget deficit is expected to balloon to A$40 billion ($25 billion) just as Rudd is due to hold an election in late 2010.
"Clearly the economy has become much more important and Rudd and his team are having to devote much more time on that than they anticipated," Sydney University political analyst Rodney Smith told Reuters.
Rudd for the first time said on Monday that the government would deliver a "temporary" budget deficit, due to falling tax receipts due to the global slowdown, with lower demand from major export markets China, Japan and the United States. He said the government expected revenue to be down by A$115 billion in 2008/09 and over the following three years, due to the global slowdown, compared to the May budget forecasts of accumulated surpluses of A$79.3 billion.
POLITICAL RISK
Smith said going into deficit had political risks for Labor, with voters used to successive surpluses under the former conservative government. But voters would be more concerned about job security, house prices and mortgage interest rates.
"Going into deficit may jar with the electorate, with the perception that keeping budgets in surplus is what governments are meant to do," Smith said.
"But it is inflation, it's unemployment, it's interest rates rather than whether a government goes into deficit or not that are the key for the government."
Latest figures for the September quarter 2009 found Australia's economy barely grew, with Gross Domestic Product (GDP) up 0.1 percent in the quarter.
Government ministers met on Monday to consider a new stimulus package, aimed at protecting jobs and building infrastructure, to be released by mid-March.
At the same time, a leading manufacturing union called for the government to reverse its support for free trade in order to protect domestic jobs, calling for Rudd to back-track from several bilateral free trade agreements.
But Rudd, in an essay on the global crisis to be published on Wednesday, cautioned against a return to protectionism.
"Soft or hard, protectionism is a sure-fire way of turning recession into depression, as it exacerbates the collapse in global demand," Rudd wrote in an essay for The Monthly magazine.
($1=A$1.59) (Editing by Jerry Norton)