Australia's government unveiled its largest deficit on record on Tuesday and forecast a decade of debt in a budget designed to nurse the economy through recession and keep open the option of an early election.
Treasurer Wayne Swan said the global downturn forced the government to write down revenues by $A23 billion in the current year, its biggest hit to income since the Great Depression, and by $A210 billion over four years.
The budget cut benefits for the wealthy but cushioned middle-class and swing voters, who are likely to decide the next election in late 2010.
It contained no new dramatic stimulus, but Prime Minister Kevin Rudd's centre-left government is already riding high after giving away $A52 billion in stimulus payments in the past eight months.
Mr Swan forecast a fiscal deficit of $A53.1 billion in the year to 30 June 2010, equivalent to 4.5% of gross domestic product, the largest in Australia's history. But it remains less than half the level of deficits in the United States and Britain.
Australia's fiscal deficit will rise to $A56 billion in 2010/11, or 4.6% of GDP, before an expected economic recovery begins to restore government finances.
Mr Swan and Mr Rudd will try to use the forecasts for a 2010/11 recovery to highlight their credentials as economic managers and portray themselves as economic saviours.
Mr Rudd, whose Labor Party won office in late 2007, remains well ahead in opinion polls, with voters generally in favour of his economic management so far during the global financial crisis.
He could, however, have the option of calling an early election by the end of 2009 if the conservative opposition in parliament's upper house block his reform agenda, which includes a controversial plans to combat global warming.
Unemployment set to reach 1 million
The budget forecast the economy to contract 0.5% in 2009/10 before bouncing back to 2.25% growth in 2010/11.
Unemployment was forecast to peak at 8.5% by June 2011, with Australia set to have 1 million out of work.
Net government debt is also due to rise from -0.4% of GDP in 2008/09 to a record 13.8% of GDP by 2013/14, falling back to 3.7% by 2019/20.That compares with Japan's existing net debt of nearly 90% of GDP, and 46% in the US.
The budget centrepiece was a $A22 billion programme of spending on major infrastructure projects over four years, brought forward from money already set aside, to pay for new hospitals, road, rail and ports projects.
The government will increase pensions by $A32.49 a week, but clawed back benefits extended to high-income earners. From July 2010, high-income earners will be cut out of the 30% subsidy on private health insurance.
The government will curb tax breaks on contributions to retirement savings acounts, havling the amount of savings contributions eligible for concessional tax rates.
It also cut its skilled immigrant intake by a further 7,000 to 108,000 in 2009/10, due to rising unemployment and falling demand for labour. Overall, the intake has been cut by 20% from 2008/09.
Mr Swan said the budget would only bounce back into surplus by 2015/16 when growth and revenues would recover.