* Australia set for record budget deficit
* Deficits forecast until 2015/16, jobless rate to climb
* Budget hits rich, cushions key voters (Refiles to add link to graphic in paragraph 9)
By James Grubel
CANBERRA, 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.
Treasurer Wayne Swan said the global downturn forced the government to write down revenues by A$23 billion ($17.6 billion) in the current year, its biggest hit to income since the Great Depression, and by A$210 billion over four years.
"We've seen the global recession move like wildfire from advanced economies through developing economies, move with unprecedented speed, severity and of course brutality," Swan told reporters.
"The impact of this severe global contraction has had a brutal impact on growth, employment and budget revenue," he said as he delivered his second budget, which lays the foundations for Prime Minister Kevin Rudd's next election, due in late 2010.
The budget hit the wealthy but cushioned middle-class and swing voters, who are likely to decide the next election.
It contained no new dramatic stimulus, but Rudd's centre-left government is already riding high after giving away A$52 billion in stimulus payments in the past eight months.
Swan forecast a fiscal deficit of A$53.1 billion in the year to June 30, 2010, or 4.5 percent of gross domestic product, the largest in Australia's history. But it remains less than half the deficit percentages in the United States and Great Britain.
Australia's fiscal deficit will rise to A$56 billion in 2010/11, or 4.6 percent of GDP, before an expected economic recovery begins to restore government finances.
For a graphic on historical budget deficits, click on http://graphics.thomsonreuters.com/059/AU_BDGT0509.jpg
The numbers were roughly in line with expectations and credit rating agency Standard & Poor's said Australia would keep its AAA rating, though one economist said the government still faced a long-term challenge to repair its finances.
Swan and Rudd will try to use the forecasts for a 2010/11 recovery to highlight their credentials as economic managers and portray themselves as economic saviours.
Rudd, whose Labor Party won office in late 2007, remains well ahead in opinion polls, with voters generally in favour of his economic management so far during the global financial crisis.
Rudd, however, could have the option of calling an early election by the end of 2009 if the conservative opposition in parliament's upper house block his reform agenda, which includes a controversial plan to combat global warming.
ECONOMY TO CONTRACT
The budget forecast the economy to shrink 0.5 percent in 2009/10 before bouncing back to 2.25 percent growth in 2010/11, with unemployment to rise to 8.25 percent by June 2010 from 5.4 percent now.
Unemployment was forecast to peak at 8.5 percent by June 2011, with Australia set to have one million unemployed.
But net government debt is also due to balloon rise from a net cash position in 2008/09 to a record 13.8 percent of GDP by 2013/14, falling back to 3.7 percent of GDP by 2019/20.
That compares to Japan's existing net debt of nearly 90 percent of GDP, and 46 percent in the United States.
For fiscal forecasts, click on [ID:nSYC000318].
Budget economic forecasts [ID:nSYD205404].
Summary of budget measures [ID:nSYD17244]
International comparison [ID:nSYD476461]
PENSIONS BOOST
The budget contained few surprises, with many key policy measures already leaked in the media. Business groups broadly welcomed the budget, though influential Greens senators said they wanted more money for the environment and the unemployed.
The budget centrepiece was a A$22 billion programme of spending on major infrastructure projects over four years, brought forward from money already set aside, to pay for new hospitals, road, rail and ports projects around the country.
The government stood by its commitment to increase pensions by A$32.49 a week, but used the cover of the global downturn and looming recession to claw back benefits extended to high-income earners during the Australia's resources-fuelled boom.
From July 2010, high-income earners will be cut out of the 30 percent subsidy on private health-insurance they do not have private health cover.
The government will curb tax breaks on contributions to retirement savings accounts, halving the amount of savings contributions eligible for concessional tax rates.
The government also cut its skilled-immigrant intake by a further 7,000 to 108,000 in 2009/10, due to rising unemployment and falling demand for labour. Overall, the intake has been cut by 20 percent from 2008/09.
Swan said the budget would only bounce back into surplus by 2015/16 when growth and revenues would recover.
($1=A$1.305) (Additional reporting by Rob Taylor, Editing by Mark Bendeich)