Greg Ansley: Swan takes risky dive into debt

Australia's response to Treasurer Wayne Swan's second Budget is simple: cross your fingers.

Swan's strategy of diving deep into the red with huge deficits that will not vanish for six years in a bid to shove the economy through recession has been alternatively accepted and condemned by business, politics and the public.

But regardless of viewpoint, Australians realise that they will be taking unprecedented levels of debt on their shoulders and that the only way out is a return to sanity in the global economy.

Much of this will depend on renewed vigour in China, whose slowdown hammered the resources sector that had previously insulated Australia from the worst.

Politically, the Budget has not been a surefire winner for the Government. Early indicators suggest Labor will have to pray the start of the gradual recovery the Treasury has predicted for next year comes in time for the 2010 election.

Yesterday, a news.com.au poll of 6800 readers showed 60 per cent thought the Budget was bad for themselves and the country, while internet betting agency Centrebet reported a post-Budget surge in hip-pocket support for the Opposition. Analysts remain divided.

Centre for Independent Studies economist Stephen Kirchner attacked Swan for "unprecedented" increases in spending as the economy faltered, saying that Government expenditure as a share of GDP would reach a record 28.6 per cent in 2009-10 - the biggest increase since Gough Whitlam's Labor administration of the 1970s.

But ANZ Bank economics head Warren Hogan and AMP Capital Investors chief economist Shane Oliver told ABC TV that, given the conditions, Swan had taken an appropriate course.

Business was pragmatic if not enthusiastic. It supported specific measures such as a new 50 per cent tax bonus for small business and the six-month extension of first-home buyers grants of up to A$21,000 ($26,573) for a further six months.

The Australian Industry Group approved the push Swan gave the economy through a A$22 billion infrastructure programme and in such other areas as research and education. But the Business Council of Australia and the Australian Chamber of Commerce and Industry were worried by the scale of the deficit - A$57.6 billion in 2009-10 and totalling A$187.4 billion to 2012-13 - and warned both fortune and discipline would be needed.

Unions welcomed the Budget. ACTU president Shane Burrow said it was a Budget for jobs, with a bit of tough love: "At the same time it sets our economy up for the recovery."

Newspapers were divided. The Australian warned that Swan's "unexplained optimism" boiled down to hope now, pay later, while the tabloid Daily Telegraph savaged Labor for forcing Australians to work harder and longer by raising the retirement age to 67, and "robbing" families through the loss of some family benefits.

But the Canberra Times said Swan had got the Budget "about right", while the Sydney Morning Herald and the Australian Financial Review said the worst feature was a failure to cut harder and deeper.

And the Opposition attacked "rubbery" figures used to predict recovery.

"Labor is betting the house on another upswing that hasn't started yet," Opposition Treasury spokesman Joe Hockey said.