PRIME Minister Kevin Rudd has broken the taboo on countenancing a budget deficit, declaring that if if Australia's economic outlook worsens further he will run up a "temporary deficit" in order to prevent an explosion in unemployment.
Telling Parliament there was "no point in sugar coating," Mr Rudd said that if the government had been unable to introduce its present $10.4 billion economic stimulus package , "the consequences for jobs would be devastating".
If global conditions worsened, Australia's economy would weaken and its already-weak government revenues would shrink further, "as surely as night follows day".
"Under those circumstances it would be responsible to draw further from the surplus and, if necessary, to use a temporary deficit to begin investing in our future infrastructure needs including hospitals, schools, TAFEs, universities, ports, roads, urban rail and high speed broadband."
"Such action would support growth, families and jobs and would be undertaken in the national interest. In fact failing to do so would be irresponsible – and would sacrifice growth and jobs," he said.
Its the first time the Prime Minister has conceded the budget may go into the red, and one of the first times he has uttered the word as Prime Minister. Until now both Mr Rudd and the Treasurer Wayne Swan have contorted language in order to avoid using the word. In Peru Mr Rudd answered questions about a deficit by referring instead to "borrowing" and in a television interview on line from the US Mr Swan referred instead to "the area that you are speculating about"...
The $22 billion surplus forecast in the May budget was halved in October by the government's $10.4 billion economic stimulus package and then halved again by updated forecasts in this month's mid-year budget review.
Mr Rudd told parliament yesterday that he would introduce another stimulus package if needed "going hard, going households, going early," and that his actions would be "consistent with the discipline of maintaining a surplus across the economic cycle."
While there was no need for a deficit "at present," every other industrialised economy apart from Canada was in deficit.
Across the OECD eight million people stood to lose their jobs.
"The strategy that is available to any government is to stand back and let it all happen; let the damage be inflicted upon households, families, individuals trying to hold onto a job or to get their first job, or to do something about it," Mr Rudd said.
The Opposition Leader Malcolm Turnbull said the Prime Minister was preparing Australians for a string of unending labor deficits.
"The last Labor deficit lasted for 6 years. It wasn't temporary, it went on for 6 long years," he said. "We are not going to see a temporary deficit, but one that goes on for as long as we have the Rudd government leading this country."
Access Economics director Chris Richardson welcomed Mr Rudd's new approach saying that as long as any deficit was "truly temporary and targeted" it would pass the economic test and should pass the political test.
Skilled vacancy figures released yesterday provided a further indication that unemployment is about to rise. The Department of Employment said skilled vacancies fell 5 per cent in November to be down 29 per cent over the year.
In contrast construction activity continued to climb in the September quarter, rising 4.4 per cent, far outpacing expectations of a 1.5 per cent increase.