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Aussie budget no longer black

AUSTRALIA will fall into a budget deficit this fiscal year as companies pay less tax and spending to stimulate the economy increases, Treasurer Wayne Swan said.

Corporate tax receipts will probably decline by A$50 billion (US$32 billion) in the next four years as the domestic economy cools and demand from China for commodities wanes, Swan told the Nine Television Network yesterday.

Swan and Prime Minister Kevin Rudd are weighing stimulus measures to cope with the weakest economic growth in eight years and stalling household spending. After distributing A$10.4 billion of handouts in December, the government may boost outlays on infrastructure projects such as roads rather than bring forward tax cuts scheduled to take effect in July, Swan said.

"Because of the unwinding of China, the global recession, it will be inevitable that Australia has a temporary budget deficit," Swan said. "Generalized tax cuts don't provide the sort of immediate stimulus that is required in an economy which is suffering a sharp shock."

In November, the government cut its budget surplus forecast to A$5.4 billion for the year ending in June, down from a prediction of A$21.7 billion in May, as it distributed the A$10.4 billion to the elderly, families and first-home buyers.

The Opposition Liberal Party, which can team with minor parties to block government measures in the Senate, doesn't object to fiscal policy going into deficit.

"If the government is going into deficit, it must have a plan to put the budget back into balance," Opposition Treasury spokeswoman Julie Bishop told Sky News.

The slowing economy is boosting expectations the central bank will cut interest rates to avoid the first recession since 1991 after Australian consumer prices fell the most in 11 years and as retail sales growth ebbs.

The Reserve Bank of Australia will cut its overnight cash rate target by 100 basis points to 3.25 percent, according to 11 of 20 economists surveyed by Bloomberg News. The other nine economists expect a reduction between 75 basis points and 100 basis points. A basis point is 0.01 percentage point.

Swan declined to estimate the size of the budget deficit amid predictions by the International Monetary Fund for an average 2009 fiscal shortfall in developed economies equal to 7 percent of gross domestic product.

"We're in a far better position than many other developed countries to respond to these global circumstances, and to cope," Swan said.


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