Statement 1: Budget Overview
Supporting the economy during the global recession
Since the worsening of conditions in global financial markets in the second half of last year, the Government has responded decisively to help cushion Australia from the impacts of the worst global recession since the Great Depression. This response includes initiatives to support financial markets; fiscal stimulus together with the Reserve Bank of Australia's monetary policy response; increased support for the States through the Council of Australian Governments (COAG) reform and the Nation Building and Jobs Plan; and programs to support Australian small businesses and jobs.
The Government's balance sheet remains strong. The Australian Government's net debt is small by international standards, and is expected to remain so — well below that of any of the major advanced economies. Net financial worth is also strong. This has allowed the Government to use its balance sheet to fund necessary stimulus spending, allow the automatic fiscal stabilisers to operate and guarantee the availability of credit to critical sectors of the economy.
As a result of the Government's fiscal action, Australia is expected to experience a milder downturn and emerge more strongly than would otherwise be the case.
Supporting financial markets
The Government has taken early and decisive action to maintain financial system stability.
On 12 October 2008, the Government announced that it would guarantee deposits and wholesale funding. Australians have been assured that their deposits in Australian banks, building societies and credit unions are safe. The guarantee also ensures that Australia's financial sector can continue to access the funding necessary to lend to Australian businesses and households at a time of considerable turbulence.
Reflecting their relatively strong performance and solid capital positions, each of the four largest Australian banks is rated AA by Standard & Poor's (S&P), with these ratings remaining stable at a time when many international banks have been downgraded. Only six of the other 100 largest global banking groups have an equivalent or higher rating from S&P.
In January 2009, the Australian Government announced that it would establish the Australian Business Investment Partnership (ABIP). ABIP is a temporary, contingency measure to provide refinancing of loans relating to commercial property assets in Australia. Loans are subject to finance not being available from commercial providers (other than ABIP) and the assets being financially viable. Without this support, a combination of weak demand and tight credit market conditions could see up to 50,000 jobs lost in the commercial property sector.
The Government has also established a Special Purpose Vehicle, 'OzCar', to help provide liquidity to viable car dealers who lost access to critical wholesale floorplan financing as a result of the withdrawal of key financiers from the Australian market late in 2008.
The announcement on 25 March 2009 of a guarantee of state and territory borrowing was a further step taken by the Government to support jobs and security, to ensure that the States have the capacity to raise debt and undertake their infrastructure projects. State infrastructure spending, supported by guaranteed borrowing, will work hand‑in‑hand with Government infrastructure investment from the nation building funds to build a stronger Australia. These projects will provide employment opportunities in the short term, whilst providing economy‑supporting capacity in the longer term.
This package of measures has played a critical role in breaking the adverse feedback loop between instability in global financial markets and the economy, by easing the flow of credit between financial institutions and out to Australian businesses and families. Ensuring stability and effective operation of the financial system is a prerequisite for a sustained economic recovery.
Australia and the other members of the Group of Twenty (G‑20) have recognised the need for concerted fiscal stimulus measures to restore global economic growth. At the recent London Summit, G‑20 Leaders estimated that current stimulus efforts will total US$5 trillion by the end of 2010. They agreed to take whatever additional steps are needed to restore trend growth.
The International Monetary Fund (IMF) will assess actions taken and further global actions required to restore growth. Leaders also endorsed principles for dealing with toxic assets and normalising credit flows, and the need for credible exit strategies to ensure long‑term fiscal sustainability. The Australian Government will continue to work with its G‑20 counterparts to overcome the current global recession.
Fiscal stimulus to support the economy
The Government has taken early and decisive action to support activity and jobs. The Government's fiscal stimulus packages have helped to cushion Australia's economy from the worst impacts of the global recession. The measures taken prior to this Budget include the $10.4 billion Economic Security Strategy, the $15.2 billion Council of Australian Governments (COAG) reform package, the Nation Building package, and the $42 billion Nation Building and Jobs Plan. The stimulus packages are expected to raise the level of GDP by 2¾ per cent in 2009‑10 and 1½ per cent in 2010‑11, supporting up to 210,000 jobs.
This stimulus has provided significant support to the economy through 2008‑09, and will continue to support the economy during the global recession. The Economic Security Strategy and the Nation Building and Jobs Plan will add $19.7 billion to household incomes — with payments targeted to cash‑constrained households who are most likely to spend them.
These targeted payments provided a significant and temporary boost to household consumption in the face of a sharp and severe global downturn, while infrastructure spending was being planned and brought on line. Without these initiatives, the downturn would be deeper and more jobs would be lost.
The Economic Security Strategy introduced the First Home Owners Boost to stimulate housing activity, support the construction industry and assist first home buyers to enter the housing market. The First Home Owners Boost has now provided support to over 59,000 first home buyers. Combined with low interest rates, the Boost has supported significant demand by first home buyers, with loans to first home buyers the highest as a proportion of the market since 1991.
OECD analysis suggests that Australia's economic stimulus measures, with a strong focus on direct government investment, are amongst the most effective of all OECD fiscal packages in terms of stimulating activity and supporting employment.
The nation building infrastructure program included in this Budget builds on the Nation Building package announced in December 2008 and the Nation Building and Jobs Plan. This funding will support activity and jobs in the short‑term, and at the same time invest in the long‑term drivers of growth and productivity. In particular, the Nation Building and Jobs Plan included a $29.9 billion investment program targeting schools, housing, energy efficiency, roads and community infrastructure projects, all designed to support jobs while providing a sustained boost to the economy over a longer period of time.
The centrepiece of the plan was the provision of $14.7 billion over three years for the Building the Education Revolution program to improve school facilities. These investments will not only support the economy in coming years, they will lay the foundations for future productivity growth by supporting schools to deliver quality educational outcomes.
The Government's initiatives to support the economy during the global recession are also providing support to Australian small business, which employs around four million Australians. The Government's economic stimulus packages will also provide considerable demand for small business goods and services during the downturn, with flow on benefits for contractors and retailers.
To provide more direct assistance, the Government introduced the Small Business and General Business Tax Break as part of the Nation Building and Jobs Plan. The $3.6 billion Tax Break is boosting business investment, bolstering economic activity and supporting Australian jobs. It is encouraging and sustaining business investment during the global recession. The Tax Break provides additional support — in the form of a bonus tax deduction — for Australian businesses that acquire new tangible depreciating assets during 2009. The Government recognises the important role played by small business, and has introduced a lower threshold for it to access the Tax Break.
The Economic Security Strategy also provided $187 million to create 56,000 new training places for the 2008‑09 Productivity Places Program. The new places announced in this Budget bring the total number of places under the program to 711,000. This program will assist disadvantaged job seekers in particular.
The Government's fiscal stimulus program started with income support and then moved into 'shovel‑ready' infrastructure. This Budget marks the start of the next phase — a move into larger and longer term nation building projects.
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