SYDNEY, May 12 (Reuters) - Australia's government unveiled its largest deficit on record on Tuesday and forecast a decade of debt in a budget designed to nurse the economy through recession and keep open the option of an early election. **************************************************************
KEY POINTS:
- Government forecasts:
2008/09 underlying deficit A$32.1 bln (Reuters poll: A$35 bln)
2009/10 deficit A$57.6 bln (poll: A$60 bln)
- Net debt seen at A$53.7 bln in 2009/10, A$112.2 bln in 2010/11
- 2008/09 GDP 0.0 pct (poll +0.1 pct), 2009/10 GDP -0.5 pct (poll 0.0 pct)
- Jobless rate to rise to 6.0 pct in 08/09 (poll: 5.6 pct), 8.25 pct in 09/10 (poll: 7.6 pct)
- Govt estimates 2009/10 total bond issuance at A$60 bln
- For more highlights click on: [ID:nSYC000323].
COMMENTARY:
STEVEN HESS, SENIOR CREDIT OFFICER, MOODY'S
"Even though the government's fiscal and debt numbers are worsening, and will continue to do so for several years, relative to other Aaa-rated countries we still think Australia has low debt and some fiscal flexibility. Therefore, the Aaa rating remains unchanged after the budget."
KYRAN CURRY, CREDIT ANALYST, STANDARD & POOR'S
"Australia rating unaffected by deficit, higher debt. Commonwealth budget is consistent with its 'AAA' long-term foreign and local currency sovereign credit ratings on Australia.
"We believe the deficits and associated borrowings do not alter the sound profile of the country's public finances. This is underpinned by the strength of the government's balance sheet, which provides flexibility to absorb debt levels and cyclical deficits of this nature.
"This budget articulates a plan for fiscal consolidation as economic conditions recover."
HEATHER RIDOUT, CHIEF EXECUTIVE, AUSTRALIAN INDUSTRY GROUP
"The spending on infrastructure will be directly supportive of jobs, the spending on social infrastructure in particular will have big multipliers through manufacturing.
"The big test of government is to make sure Australian-based companies get a fair go at accessing those contracts. Everyone should be worried about the debt levels, because they are very high, but they are not high relative to many of our trading partners."
ANDREW GOODSALL, ANALYST, UBS:
"For Sonic Healthcare
JOE HOCKEY, SHADOW TREASURER
"This budget will have a profound impact on Australian families. A$9,000 of debt for every man, every woman and every child in Australia. A$500 a year in interest repayment for each of those people. This wasn't in the budget speech. The real cost of this budget will be borne over many years. There was no structural reform in this budget."
SHARAN BURROW, PRESIDENT, AUSTRALIAN COUNCIL OF TRADE UNIONS
"For working Australians and their families this is a budget for jobs, jobs and jobs with a bit of tough love on the side. It takes the hard decisions that are needed now to safeguard jobs and protect Australians from the global recession.
"At the same time this budget sets our economy up for the recovery. Unions strongly welcome the massive commitment to support and create jobs by fast-tracking upgrades to schools, public housing, hospitals, roads, ports, rail and to build a new national broadband network."
SEAN FENTON, PORTFOLIO MANAGER, TRIBECA INVESTMENT PARTNERS:
"I didn't see anything surprising. The changes that are going to affect the market, probably health care's the biggest one, scaling back the level of private health insurance rebates on high income earners.
"They're building lots of new roads, metro rail. That'll
probably be a minor positive for engineering stocks like
Leighton
STEVE CAMPBELL, HEAD OF CAMPAIGNS, GREENPEACE
"The biggest problem in this budget is the A$2 billion for carbon capture and storage. It is a technology that it is clear will not be ready for many decades to come. Carbon capture and storage is a bridge to nowhere. It is a technology that is now removing money from renewable energy in this country that could be invested much more wisely."
MICHAEL ROFF, CEO, AUSTRALIAN PRIVATE HOSPITALS ASSOCIATION
"It's fair to say there will be people dropping out of health insurance as a result of the measures. There will also be widespread confusion amongst Australians as to what they are actually entitled to. What the government has proposed is an enormously complex system and one that will increase the administrative burden on government and the health funds.
The biggest impact on (health insurance) premiums will be from people dropping out. For every person that drops out, that results in an increase in premiums on those remaining, and an increased burden on the hospital system. We will certainly be working to make sure it doesn't go ahead as it has been proposed because we think it would be bad policy and bad for the Australian health system."
ADAM CARR, CHIEF ECONOMIST, ICAP
"Given that we have already seen some signs of recovery in the domestic economy, the 09/10 growth forecast is far too weak. Overall, the budget deficit, given that the bulk of it appears to be a collapse in revenues, will actually be in a much better position when we come to look at this again next time."
BRENDAN LYON, EXECUTIVE DIRECTOR, INFRASTRUCTURE AUSTRALIA
"The budget's focus on critical new urban and interurban rail projects will help Australia to address congestion pressures and transform the way Australia's cities move and grow. Congestion across Australia's cities is one of the most significant challenges facing Australia's governments. The federal government estimates that without concerted action, congestion will cost Australia more than $20 billion by 2020."
PETER ANDERSON, CHIEF EXECUTIVE, AUSTRALIAN CHAMBER OF COMMERCE AND INDUSTRY
"It's a risky high-wire act, but a calculated risk which relies heavily on the recession being relatively short. If the recession is long and deep, then this budget will not provide a basis to return to surplus in the medium term. The major weakness in this budget is its failure to apply substantial discipline to Commonwealth spending."
SENATOR BOB BROWN, LEADER OF AUSTRALIA'S GREENS PARTY
"This budget is a missed opportunity to transform Australia to a low-carbon economy. It is clear the Rudd government is more interested in propping up the coal industry than investing in the clean, renewable energy jobs of tomorrow. The Rudd government is spending almost double the amount of money on coal projects as it is investing in clean, renewable energy projects."
MICHAEL BLYTHE, CHIEF ECONOMIST, COMMONWEALTH BANK
"They delivered everything we thought: a big budget deficit, forecasting recessions and some nasty labour market outcomes. On the return to surplus -- 2015/16 seems a long way away to achieve that. It looks from the initial scan like they're balancing short term needs to stimulate the economy against being put on a path to surpluses in the medium term...The stimulus measures look quite good.
" Is it a responsible budget? Certainly for the short term. On some of the longer term issues it remains to be seen. It is a very long period we're being asked to take on trust there."
MARKET REACTION:
The Australian dollar
LINKS:
The Department of Treasury Web site is www.treasury.gov.au
For all Australian news and data, 3000 Xtra users can click
on
BACKGROUND:
- Markets had been primed for a sharp deterioration in the government's finances as the global economic slowdown hits tax revenues and after pledging some A$52 billion in stimulus measures to cushion the domestic economy.
- Economists had expected a record deficit for 2009/10 and no sign of a return to surplus budgets for six years.
- Budget seen as crucial for Prime Minister Kevin Rudd's government, which faces an election by late 2010. His centre-left Labor Party is still well ahead in the polls, though Australians typically punish governments who rack up large deficits.