Australia rescues €21.2 billion stimulus plan

Australia's Parliament passed a €21.2 billion economic stimulus package yesterday after a last-minute political deal rescued the government's plan to try to avert the country's first recession in two decades.

The vote boosted the Australian dollar on hopes that the stimulus payments would reach households in time to stop the economy from contracting as the global slowdown bites deeper.

"Growth is slowing everywhere around the world and countries that can do anything about that are being rewarded," said Jonathan Cavenagh, a currency strategist at Westpac. The stimulus package, the largest ever in Australia, is worth about two per cent of gross domestic product this year and 1.3 per cent next year.

The Treasury estimates it will lift growth by 0.5 points this financial year (July-June) and 0.75 points in 2009-10.

"Australia cannot resist the international economic forces and we cannot defy the effects of the downturn in our region," Prime Minister Kevin Rudd told Parliament after the stimulus measures were endorsed.

The package had been defeated by one vote in the upper house Senate a day earlier, handing Mr Rudd his biggest parliamentary defeat since he won office in late 2007 and prompting fears that cash payments to workers and families would be delayed. Analysts had worried that any delay in distributing cash handouts worth €6.5 billion could leave a hole in spending this quarter, and possibly lead to a drop in gross domestic product.

But the package was resurrected and passed after intense negotiations overnight and into yesterday morning between Treasurer Wayne Swan and independent Senator Nick Xenophon, who had voted against the package on Thursday.

Mr Swan secured Mr Xenophon's vote by agreeing to bring forward almost €509 million of spending to fix rivers in Australia's foodbowl Murray-Darling basin, which has suffered a decade of drought and a century of over-allocating water for irrigation. "I'm not sure whether this package is going to save this country from recession," Mr Xenophon told Parliament.

"I'm pleased to say I believe we have been able to reach a compromise, which while not giving everybody what they want, may give everyone what they need."

Australia's top business group, the Australian Chamber of Commerce and Industry, said Parliament's endorsement of the stimulus would help protect Australia from the global slowdown.

"It should stabilise business confidence and add some measures to investment confidence," chamber chief executive officer Peter Anderson said.

The conservative opposition parties, which hold the largest voting bloc in the Senate, voted against the package, saying it was too big and would saddle future generations with ongoing government debt.

Under an earlier deal to win Senate support from the Greens, the government trimmed the cash payments for millions of workers and families by €25.40 each to a maximum of €45.80, saving about €203 million which will be spent on Green projects instead.

Late last year, the government announced a €5 billion stimulus package which helped Australia skirt a recession.

Six of Australia's major trading partners are in recession and that is threatening further job losses in Australia, with latest data showing unemployment hit a two-year high of 4.8 per cent in January.