Rudd pumps $10.4 billion into economy

(AAP) The Rudd government has gone on a massive $10.4 billion spending spree in a bid to spare Australia the worst effects of the global economic crisis.

Pensioners, families and first home buyers are the big winners under the
government's strategy that aims to prevent a deep and prolonged economic slowdown.
Almost half of the $21.7 billion budget surplus will be pumped back into the
economy, with Prime Minister Kevin Rudd warning the global crisis had entered a
dangerous phase that demanded preventative action.
He suggested the government might loosen the budget purse strings further, saying
the government was determined to take "whatever action is necessary in the future"
to maintain stability of the Australian financial system and underpin economic
growth.
"The global financial crisis has entered into a new, dangerous, and damaging phase,"
Mr Rudd told reporters in Canberra.
"That's why the government has decided to act decisively and early on the question
of this economic security strategy for the future.
"(It's) decisive action, responsible action, early action, all in Australia's
interests."
Mr Rudd made an unusual televised address to the nation, outlining his government's
latest move to protect Australia from the global financial crisis.
The three-minute address was transmitted around the nation.
The last time a prime minister made such an address was when John Howard decided to
send troops to Iraq in March, 2003.
"Many Australians have become concerned, anxious and even fearful as to the future,"
he said.
"I've described it as the economic equivalent of a national security crisis.
"More than 25 banks around the world have failed, or been bailed out.
"But here in Australia, we have among the best
regulated banks, with the best balance sheets, in the world."
He said as prime minister, he would act to ensure the stability of Australia's
financial system, but warned the country would not be immune from the crisis
impacting around the world.
One-off handouts include $4.8 billion to all pensioners and carers, and $3.9 billion
to low and middle income families.
The package also includes a doubling of the $7,000 First Home Owners Grant until
June next year, or $21,000 for first home buyers purchasing newly constructed homes.
The package provided a further lift for the share market, which gained around four
per cent on top of Monday's five per cent rally - the best two-day gain in 33 years.
The market also received a major boost from the biggest ever points gain on Wall
Street on Monday.
Opposition Leader Malcolm Turnbull backed the strategy and said it would help
cash-strapped pensioners but noted it was fiscal concerns, not compassion, that had
prompted the government to act.
He also questioned whether existing homeowners might end up bearing the brunt of the
bonus for low-income Australians.
"We trust that the government has taken into account advice from Treasury and
considered the impact that this stimulus may have on the Reserve Bank's ability to
continue reducing interest rates," Mr Turnbull said.
"But nonetheless we're not going to argue about the composition of the package or
quibble about it. It has our support."
Business, welfare and housing groups welcomed the initiative, but economists also
noted it may limit how much further the Reserve Bank of Australia (RBA) is able to
cut interest rates.
"This package contains all three ingredients to have maximum impact. It is
well-timed, well-targeted, and temporary," Business Council of Australia President
Greig Gailey said.
Commonwealth Securities chief economist Craig James said the package was not without
its risks if the stimulus proved excessive.
"But with many advanced economies facing recession and financial systems shaky, we
believe it is a risk worth taking," Mr James said.
There is no exact figuring of what impact the package will have on economic growth
and inflation at this stage. That will come in next month's mid-year budget review.
The government has said the surplus will remain in the black.
The package is the equivalent of a one per cent injection into economic growth,
suggesting that this was the size of the damage that could have occurred to already
thinning growth if the government had sat on its hands.
"The purpose of a surplus in the budget is to deal with tough times and tough times
are with us," Mr Rudd said.
The package will also provide $187 million to create 56,000 new training schemes and
formally accelerates the implementation of the government's three nation building
funds.
Treasurer Wayne Swan, just back from meeting the world's finance leaders in
Washington, said Australia was in the midst of the worst financial crisis ever to
confront the modern market economy.
"This is an important package, an important strengthening of the Australian
economy," he told reporters in Canberra.
"We have acted to strengthen our financial system and to strengthen the stability of
our banks."
The announcement follows last weekend's emergency plan to support the Australian
banking system, which included guaranteeing bank deposits.
Mr James expects the Reserve Bank of Australia still has room to cut the cash rate
to five per cent by late this year or early next year.
The rate currently sits at six per cent following last week's surprise full
percentage point reduction.
"But further rate cuts may be delayed if the stimulus package is too successful in
supporting economic growth," he said.
Wholesale interest rate markets reacted to the package by reducing rate cut
expectations for next year by around a quarter of a percentage point, but are still
priced for a half percentage point decrease next month.