KEY POINTS:
Prime Minister Kevin Rudd will face his first Parliament of the year today, hammered by a global financial crisis that will force him to drive the nation deep into debt.
Rudd will use this week's sitting to unveil another massive economic package designed to keep industry and businesses afloat, stem a haemorrhage of jobs, and offer at least some lifelines to the nation's ailing suburbs.
"We're going to move heaven and earth to try to keep growth positive," he said after Cabinet considered the package yesterday.
Some relief will almost certainly come in Sydney today, where the Reserve Bank board is expected to again reduce interest rates, further pruning mortgage repayments.
But with A$115 billion ($144 billion) in tax revenues likely to be hewn from Government income, Rudd and Treasurer Wayne Swan have now conceded that years of budget surpluses will be erased by the crisis, and the Government will dive into the red.
Rudd's answer will be a vast stimulus package - adding to billions already spent on trying to keep the economy's head above water - that is expected to range from further tax cuts to billions of dollars worth of new infrastructure spending.
His strategy will be mirrored in New South Wales, the first state to fall into recession, and which last year turned abruptly against almost universal global responses to the financial tempest by battening down the hatches and hauling back spending.
Following widespread condemnation, Premier Nathan Rees has now backflipped, announcing that his Government would instead accelerate spending on already-planned major infrastructure projects, and begin others.
Rudd has gained widespread backing for his response, but will still face tough grilling in Parliament by rivals critical of specific measures.
Although losing some steam over the Christmas break as reality descended on the nation, a new Morgan poll shows support for Labor remains well ahead of the Opposition.
But the Coalition will use the crisis wherever possible to undermine Rudd, already questioning his tax strategy and demanding a coherent plan to return the budget to surplus.
The Greens will further insist on social and welfare priorities.
"I'm not inclined to simply tick off on a very conservative economic package from Kevin Rudd," Leader Bob Brown told ABC radio.
Rudd will need to negotiate a minefield of conflicting priorities. Yesterday, the Australian Medical Association released its pre-budget submission, advocating health as the major target for the Government's economic pump-priming, including such earlier Rudd priorities as public hospitals and the groaning Medicare universal healthcare system. But the Australian Chamber of Commerce and Industry, in its submission, focused instead on tax relief, investment and depreciation allowances, and education and training.
The chamber sought a package equivalent to at least 2 per cent of gross domestic product, over and above the A$36 billion pumped into the economy in measures announced late last year.
Rudd's response will be shaped by hard economic realities.
As late as November Treasury predicted economic growth of 2 per cent in 2008-09, and the Reserve Bank 1.5 per cent. At the weekend the International Monetary Fund warned of growth of just 0.2 per cent, a figure many economists believe is closer to reality. The Reserve Bank will release its updated forecast on Friday.
Headlined by the Chinese slowdown that has hammered Australia's key mining industries, gloom extends over every sector of the economy, with two new indicators yesterday confirming continued declines in manufacturing and house prices.
New Morgan polls also confirmed falling consumer confidence, and estimated that the real rate of unemployment reached 6.9 per cent last month, with 767,000 workers now jobless. With warning of worse ahead, welfare agencies are also now urging Rudd to relax "punitive" rules on savings and redundancy payments that force sacked workers to strip their savings to just A$2500 to qualify for a weekly dole of A$225.
Rudd's new package is expected to include tax cuts for low-income earners, extra spending on health, education and other infrastructure, and incentives for companies to retain workers.
"Either you stimulate the economy to support jobs or you simply allow unemployment to run its course as you see the queues of the jobless grow and grow," he said. "Our course of action is clear - the Government will intervene.
"We have done so already, we will do so again, and we will do so decisively."
