A weaker economy, more industry bailouts and a huge stimulus spend are likely to push the Federal budget into a $40 billion deficit next financial year, the National Australia Bank says.
A 2009-10 budget blow-out, spelling a dramatic reversal of Australia's run of surpluses, would arise due to a weaker economy and the need for more economic rescue packages, NAB economist Jeff Oughton said today.
The self-described "bearish'' prediction emerged in the bank's latest business confidence survey, which showed December posting the twelfth consecutive month of negative sentiment.
"We have allowed for a substantial increase in government spending - of the order of over $15 billion per annum," Mr Oughton said.
"[It] allows for cyclical deterioration from a weaker economy as well as a big increase in economic rescue packages."
He said the Federal Government was likely to spend another $15 billion on new home buyers' grants, further packages for pensions and tax cuts.
The deficit forecast by NAB is nearly four times larger than the $10.4 billion stimulus package announced in October.
In addition to the stimulus package, the Federal Government has offered a special fund for the car industry, and announced a $4 billion Australian Business Investment Partnership to keep the commercial property industry running if foreign banks stop writing new loans.
'No comparison'
Labor Party veteran and political consultant with Hawker Britton, Simon Banks, described NAB's forecast of a $40 billion budget hole as a "sizeable deficit".
However, he cautioned the NAB figure was only a "projection ... not government figures".
It was impossible to compare the last recession, in the 1990s, with the magnitude of the financial crisis now gripping the global economy, Mr Banks said.
The crisis had frozen global credit markets and triggered the collapse of commodities prices, undercutting two of Australia's largest industries.
Globally, developed and emerging economies have fallen into recession, dragging down demand for Australian commodities.
This stood in contrast to the recession of the early 1990s which stemmed from primarily localised issues, Mr Banks said.
The current crisis "is overwhelmingly driven by international factors",' Mr Banks said.
"And governments, including the Australian government, are responding as appropriate."
NAB predicts a $10 billion Federal budget deficit for the current 2008-09 financial year.
The expectation of a budget blow-out in 2009-10 coincides with a grim assessment for business confidence.
The NAB said its business confidence survey figures firmed to minus 20 points in December, but this was from a record low of minus 29.9 in November.
GDP to shrink
Meanwhile, NAB lowered its gross domestic product growth forecast for 2009 to minus-0.25pc from a previously expected 0.5pc gain.
It dropped its forecast for 2010 to a 1pc increase from an earlier prediction of 1.75pc.
Weaker growth means a higher jobless rate, costing the Government more money in unemployment benefits.
Unemployment is expected to rise as high as 9pc in 2010 from its current level of 4.5pc, as companies with slumping business levels shed jobs.
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