$42 billion Nation Building and Jobs Package
On 3 February 2009 the Prime Minister Kevin Rudd and the Treasurer Wayne Swan announced the $42 billion Nation Building and Jobs Plan to stimulate the economy in response to deteriorating global economic conditions. It complements the $10.4 billion Economic Security Strategy announced in October 2008.
The Current Economic Environment
The outlook for the global economy has significantly changed since the Government’s Mid-Year Economic and Fiscal Outlook 2008-09 (MYEFO) in November 2008. The Government has issued the Updated Economic and Fiscal Outlook (February 2009) that forecasts economic growth of 1% of GDP in 2008-09 and 0.75% of GDP in 2009-10. This is in the context of a global recession with the International Monetary Fund (IMF) figures forecasting that advanced economies will collectively experience negative growth (-2%) in 2009.
The end of the global commodity boom and the fall in China’s growth in particular will result in a marked decrease in the Government’s tax receipts over the Forward Estimates. This is mainly the result of declining profits, with company tax receipts over the next four years expected to drop by an estimated $50 billion (17%). Further, GST receipts to the States over the next four years will also be down by $10 billion (5%) as consumers cut their spending. Rising unemployment (now forecast to rise to 7%) will cut personal income tax revenue by $13 billion (2.4%). In total, the Government expects that tax receipts over the next four years will be $115 billion lower than was forecast in last year’s budget and $75 billion less than what was forecast in MYEFO.
Table 1.2: Main economic parameters(a)(b)
- All parameters except the CPI are year average percentage changes. The CPI is through the year growth to the June quarter.
- The forecasts include the fiscal stimulus measures announced at the time of UEFO and assume an interest rate profile in line with market expectations at the time that the forecasts were prepared. The projections of economic growth are based on analysis of underlying trends in employment and productivity. With a sharp fall in key non-rural commodity prices included in the forecasts, the Budget and MYEFO assumption of a further fall in commodity prices during the projection years is no longer appropriate. The projections of inflation are consistent with the medium term target band.
Budget
Consequently, the budget will run at a deficit over the next four years.
Financial Year | Deficit |
2008-09 | -$22.4 billion (1.9% of GDP) |
2009-10 | -$33.2 billion (2.8% of GDP) |
2010-11 | -$31.5 billion (2.5% of GDP) |
2011-12 | -$23.9 billion (1.8% of GDP) |
Effects of the Nation Building and Jobs Plan
The Plan delivers a fiscal stimulus package of about 2% of GDP in 2009. The effect of the Plan on the economy will be such that GDP growth is expected to be around 0.5% higher in 2008-09 and around 0.75% to 1% higher in 2009-10 than it would have been without the Plan. Further, it is expected to support and sustain 90,000 jobs throughout 2009 and 2010.
Chart 2.1: Fiscal stimulus packages delivered by the Australian Government(a)
- Impact on underlying cash balance as a per cent of annual nominal GDP. Source: Treasury.
Details of the Nation Building and Jobs Plan
Schools
$14.7 billion Building the Education Revolution Program |
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Energy Efficiency
$3.9 billion Energy Efficient Homes Program |
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Households
$12.7 billion Household Stimulus Package |
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Business
$2.7 billion Small Business and General Business Tax Break |
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Infrastructure
$150 million Boom Gates for Rail Crossings |
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Additional $90 million investment in the Black Spot Program |
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$650 million investment in Repairing Regional Roads and Funding for Community Infrastructure |
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Housing
$6.6 billion Public and Community Housing |
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The Nation Building and Jobs Plan will boost household consumption, support private sector investment, provide additional public investment spending and support jobs. Furthermore, it will benefit schools, the homeless and low and middle income households, cut energy bills in homes and reduce carbon emissions. In this way it strengthens the future capacity of the economy while at the same time providing an immediate stimulus to the economy, mitigating the effects of the global economic crisis.
Links
Media Release –The $42 billion Nation Building and Jobs Plan
Media Release –Energy Efficient Homes –Ceiling Insulation in 2.7 million Homes
Media Release –Small Business and General Business Tax Break
Media Release –Macroeconomic and Fiscal Outlook
Media Release – Black spots, boom gates, regional roads and community infrastructure
Media Release – 20,000 social and defence homes – nation building investment
Media Release – $950 one-off cash bonus to support jobs
Media Release – Building the Education Revolution –New and upgraded buildings in every Australian school
Updated Economic and Fiscal Outlook February 2009