Australia pumps funds into stimulus spending

By James Grubel  |   2008-12-13  |     NEWSPAPER EDITION

THE Australian government will spend an extra A$4.7 billion (US$3.15 billion) on major projects from 2009 under new stimulus measures to help the economy avoid recession, Prime Minister Kevin Rudd said yesterday.

The new money includes funds to increase rail capacity from coal mines in the Hunter Valley of New South Wales to the world's largest coal port of Newcastle, doubling the amount of coal transported to market to 200 million tons, Rudd said.

He said the spending would add 0.25 percent to 0.5 percent to gross domestic product and comes after the government in October announced A$10.4 billion in stimulus payments to families, pensioners and first home buyers to protect the slowing economy from the global downturn.

"We believe it is the right level of stimulus that we need to inject at this time," Rudd said, adding that the government would announce more infrastructure spending in 2009.

Australia's economy has been hit by the global financial crisis, with economic growth falling to 0.1 percent in the September quarter and with unemployment rising and consumer spending stalling.

The government has already announced an extra A$15 billion in funding over five years for state-run schools and hospitals, and a A$6.2-billion package to support struggling car manufacturers.

"These actions are all necessary in the face of the most uncertain period in the global economy in living memory," Treasurer Wayne Swan told reporters.

Despite the new spending, Swan said the Australian budget would remain in surplus.

"The package is affordable. The budget does remain in surplus over the forward estimates," he said.

The new spending and money previously committed to infrastructure projects will fund 46 projects in rail, roads and education.

About A$1.2 billion will be spent on rail projects to help fund track upgrades and new rail lines, including several mail rail projects designed to boost the ability of coal mines to send coal to the port of Newcastle.

The government said it would introduce a new temporary 10 percent investment allowance, which would be provided as an extra tax deduction for business investing in plant and equipment worth more than A$10,000.