The global financial crisis will dampen Australia's economic growth, reduce drastically the forecast budget surplus and increase unemployment, the Australian government said in its Mid-Year Economic and Fiscal Outlook (MYEFO) report Wednesday.
In a bleak economic prognosis, Federal Treasurer Wayne Swan said the government expects the fall-out from the global downturn to result in a dramatic drop in tax receipts over the next four years. He said tax receipts were expected to be almost A$40 billion lower over the next four years than anticipated at the time of the May budget.
Revenues will drop A$4.9 billion this financial year, A$12.2 billion next year, A$12.4 billion in 2010-11 and A$7.9 billion in 2011-12, mainly due to a lower capital gains tax take due to the dramatic falls in global share markets, as well as lower company profits, he said.
He confirmed a dramatic hit to government revenues and reduced the A$21.7 billion surplus forecast in the May budget for the current year by A$16.3 billion to A$5.4 billion for 2008-09. The impact is also expected to cut the 2009-10-budget surplus from an earlier forecast of A$19.7 billion to just A$3.6 billion.
Swan's projections, contained in the Government's mid-term economic forecasts, include unemployment figures that are set to rise 5 percent by June next year and to 5.75 percent the following year. That compares with a jobless rate of 4.4 percent expected when October data is released Thursday.
The gross domestic product (GDP) growth forecast for this financial year has been revised downward 2.0 percent from 2.75 percent, he said. The 2009-10 GDP growth forecast has also been cut to -- to 2.25 percent from 3.0 percent.
There was more proof of the Australian economy slowing dramatically Wednesday, with building approvals slumping 7.2 percent in September alone, the worst monthly result in six years, data just out showed. These approvals were a huge 22 percent lower than in September 2007, the biggest drop in more than seven years.
The lower projections came just a day after the Reserve Bank surprised the financial markets, for the second month in a row, with a big 75 basis-point cut in its key interest rate to 5.25%, a level not seen in five years.
This projected slowdown came despite the $10.4 billion fiscal stimulus package announced by the Rudd Government last month aimed at cushioning the economy from the global downturn.
Global economic conditions have changed dramatically in recent months as the global financial crisis has entered a dangerous new phase, Swan said.
More than 30 financial institutions around the world have failed or been bailed out, and globally stock markets have suffered significant losses. All members of the G7 group of advanced economies have now experienced negative growth at some time during 2008, the Treasurer added.
"There's no point in trying to sugar-coat these figures," he said, warning there could be more bad news ahead if global conditions deteriorated further.
Noting that the government was still forecasting modest growth and modest surpluses, Swan reiterated that Australia's economy remains among the strongest among developed countries that were already in recession, joining only Canada among those likely to remain in surplus.
This is slower growth but it is solid growth, given the international circumstances, he said. While Australia is clearly not immune from the effects of the global financial crisis and the global downturn, the country is better placed than most other countries to withstand the fallout.
Markets initially reacted negatively to the government announcement, with shares shedding some of their early gains. However, the S&P/ASX200 share index picked up again and was recently traded at 7280 points, or 1.9% higher for the day. The Australian dollar also lost ground, recently buying 69.49 U.S. cents.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.