KEY POINTS:
CANBERRA - Prime Minister Kevin Rudd has set Australia to work on repairing and rebuilding its schools, roads, housing, and suburban confidence with a massive A$42 billion ($53 billion) handout to keep hundreds of thousands of workers in jobs.
Rudd hopes that the flood of cash coming from the federal pump, added to more than A$30 billion already committed, will allow the nation to escape recession while building for the future.
But it will mean that Australia will be deeply in debt for years to come, and that when the economy does rebound it will face a parsimonious Government that will pare spending to the bone to return its budget to surplus.
Rudd's first-term Administration will also be sorely tested by its strategy of filling a gaping hole in private consumption with public demand, especially as unemployment begins to peak later this year.
New Treasury forecasts released in Rudd's mini-budget yesterday predict that the jobless rate will rise from its present 4.5 per cent to 7 per cent, adding an extra 300,000 workers to an existing dole queue of about 500,000.
One-third of the increase will come from people sacked from their jobs, the rest from those unable to find work.
Rudd's package intends to prop up jobs and consumption through targeted spending on "nation-building" programmes, cash handouts, and tax relief for business. The cash will be directed at sectors already identified as priorities by the Government, including education, community housing, roads and local infrastructure.
Rudd said his package was designed to support up to 90,000 jobs in 2009-10.
"There is no silver bullet," he said of the global financial crisis pounding the nation.
"I have no intention of misleading the Australian people on this.
"This package does not represent the removal of the problem - it is our best effort to reduce the problem."
Politically, the Government faces a rough ride from the Opposition parties, who will probe every weakness in the package in a bid to undermine Rudd's strong lead in the polls and position themselves for the next election.
While the Coalition is unlikely to attempt to block any of the key measures that place billions of dollars into the hands of low-income earners and small businesses, boost schools and local road networks, and bolster jobs, it will make the Government sweat.
Opposition Leader Malcolm Turnbull made his strategy clear yesterday when he said that he was committed to work and co-operate with the Government - but would scrutinise the package "line by line, dollar by dollar in a very intensive way.
"I am concerned not about the stimulus, but about the structure of the stimulus and the way it is delivered."
Rudd - and the nation - will have little tolerance for anyone who stands in the way.
The Reserve Bank yesterday bolstered his package by pruning another 100 basis points off its official rate, hauling it to a record low 3.25 per cent, saving average borrowers more than A$150 a month if it is passed on in full.
Rudd said yesterday that he expected the banks to do exactly that, delivering a veiled warning through a reminder to the major lenders of measures the Government had taken to strengthen them against the global financial crisis.
"I strongly urge banks to take an open-hearted and compassionate approach to people and businesses who are in strife for which they are not responsible," he said.
Rudd also warned the states not to impede in any way the public works about to roll across the country, and not to hold back their own - a message already heard in New South Wales, which is now reversing an earlier plan to defer or cancel projects.
He said that he would have "zero tolerance" towards any wilful state government, a threat that carries real force through federal control of tax revenue. And he also indicated that even further federal resources may be unleashed if necessary.
"This Government will never haul up the white flag on recession. We will throw everything at it."
The urgency and scale of Rudd's package has been propelled by forecasts of rising unemployment and forecasts that since November have more than halved expected economic growth from 2.25 per cent to just 0.75 per cent.
Adding to the flood of bad news that has already gripped Australia, business confidence has plunged to its lowest level in 14 years, and new trade figures yesterday reported that the nation's trade surplus had almost halved last month.
Trade Minister Simon Crean also warned that Australia could be further hammered by a potential global retreat to protectionism, led by plunging demand in China, "Buy America" legislation that could axe A$500 million in Australian steel exports to the United States, and fears that the Asean nation's free trade deal with Australia and New Zealand could unravel.
Rudd said the nation's 7500 primary schools would become economic growth centres as money was released to build libraries, halls and other facilities, supported by 500 new science laboratories and language learning centres.
Homelessness would be halved by 20,000 new social housing units, with another 2500 derelict, vacant units to be renovated. Greenhouse gas emissions would be reduced by the equivalent of the removal of one million cars from Australian roads by installing insulation in 2.7 million homes, saving each household A$200 a year in energy costs.
Businesses would be given tax breaks to encourage investment and retain workers.
Low and middle-income workers and struggling farmers would be given one-off bonuses of up to A$950 each.
Economists said the package would help boost short-term consumption, help save jobs and shift workers sacked from the construction and mining sectors to new infrastructure projects.
It would also help increase productivity, and ease business pain.
The package was welcomed by housing, road transport, education, social and community organisations.
But it was attacked by health groups for ignoring their ailing sector, some small business groups, and opponents of the Government's climate change policies.
