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Michelle Grattan and Tim Colebatch
May 12, 2009

The second Rudd Government budget will predict a huge $58 billion deficit.

TONIGHT’S second Rudd Government budget will predict a huge $58 billion deficit in the new financial year — a record 4.9 per cent of GDP, higher than in any post-war recession.

It will also estimate almost a million people will be unemployed, with the unemployment rate rising from 5.4 per cent to 8.5 per cent.

Costello: Swan ‘desperate’
Peter Costello accuses Wayne Swan of desperation over the looming budget deficit but fails to answer whether he would run a deficit himself.

The budget will cut into so-called middle-class welfare, and slice spending in other areas, but the collapse of revenue and the cost of the earlier stimulus packages will bring a string of red numbers.

The deficit is an $80 billion turnaround since the forecasts in last year’s budget.

The leak of the figure last night prompted the Opposition to declare that “the Australian Labor Party has lost control of the nation’s finances”.

The Government will today seek to rush through a bill to allow it to keep $365 million in revenue collected from its defeated alcopop tax. It has also signalled that it will try again to get the tax hike through the Senate.

Its fate will depend on a change of heart by Family First senator Steve Fielding, who voted against it last time. There is agreement to validate the $365 million already collected.

Treasury now forecasts that the economy’s collapse will lift unemployment to record levels. While the unemployment rate is expected to peak at 8.5 per cent, well below its 10.9 per cent peak in the last recession, the total numbers out of work would rise even above the 933,000 unemployed in December 1992.

Prime Minister Kevin Rudd, preparing to justify the unprecedented deficit, said Treasury advice to be published in the budget was that if the Government had not brought in its earlier stimulus measures, unemployment would have reached 10 per cent.

The budget would “support the jobs of today by investing in the infrastructure we need for tomorrow”, Mr Rudd said yesterday.

Treasury’s advice was “the final nail in the coffin for those who argue that governments should do nothing to support jobs during a global recession”.

“We are in the worst recession, the worst global recession since the Great Depression,” Mr Rudd said.

Meanwhile former NSW Labor treasurer Michael Costa launched a sharp attack on the Government, saying he had always taken the view “the Prime Minister and his Treasurer don’t know what they are doing”. The stimulus had been a “disaster”, Mr Costa said.

“The issue comes down to how many jobs did you actually save for that level of spending and the cost-benefit of the stimulus becomes an issue.”

A pension rise of about $30 a week, a go-ahead for major infrastructure programs and the promised parental leave scheme will be among the budget’s good news, but many people will be hit in the hip pocket by losing their private health insurance rebate and superannuation concessions.

Shadow treasurer Joe Hockey said the Rudd Government was “a reckless spender”. “Every man, every woman and every child will have a burden of $2600 just for next year’s budget.”

But he refused to say what would be an appropriate level of debt. Mr Hockey said it was “inconceivable that we could have such a deterioration of unemployment in such a short time. We left the Labor Party with unemployment levels at 4 per cent, with a $22 billion surplus, with no debt.”

Mr Rudd said every government worldwide was “engaged in temporary borrowing”.

The Government has the added problem of a hostile Senate, which puts at risk some of its savings measures.

The Opposition is reserving its positions on measures such as the means test on the private health insurance rebate, which has been criticised by Senator Fielding and independent senator Nick Xenophon.

Opposition Leader Malcolm Turnbull said this was “unquestionably a broken election promise. “There was no election promise that was made more repeatedly or more emphatically by Mr Rudd than that there would be no change to the private health insurance rebate.”

Attempting to apply heat to the Coalition, Treasurer Wayne Swan said: “The Opposition on the one hand can’t be out there saying they’ll support a pension increase, then knock back the savings that make that pension increase sustainable for the long term. They can’t have it both ways.”

Mr Swan said the budget was complex. “We have to stimulate the economy now to support employment. We have to make room for vital investments and also for pensions.

“But also, we’ve got to make those longer-term savings that bring the budget back to sustainability over time given the new global circumstances.”

Business confidence has picked up — the NAB confidence index held on to most of its gains in April to come in at a near six-month high of minus 14 points, well above the minus 32 points recorded in January.

With BRENDAN NICHOLSON, SARAH-JANE COLLINS and PETER MARTIN

http://www.theage.com.au/national/get-ready-for-58bn-deficit-and-million-jobless-20090511-b0mb.html?page=-1

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