ALMOST a million Australians are expected to be unemployed by the middle of 2011 as the Government borrows and spends at an unprecedented rate to fight the worst global slump since the Great Depression.
Treasury has bluntly warned that recession in Australia is inevitable following a dramatic collapse in world trade, business investment, tax revenue, household spending and exports.
Mr Swan and the Prime Minister have hardened their rhetoric on the economy in recent weeks, with both admitting that a recession is on the way.
Highlighting a swift and severe deterioration in economic fortunes, the economy is expected to flounder this financial year with no growth and then shrink by 0.5 per cent in 2009-10.
The slump is tipped to push the unemployment rate from 5.4 per cent now to a peak of 8.5 per cent by the June quarter of 2011.
That implies almost a million people will be officially unemployed as hundreds of thousands lose their jobs in the lead-up to next year's election.
Although Treasury warns that the global recession could prove longer and more severe than feared, the ray of hope is that a China-led global recovery is likely to produce 2.25 per cent growth in 2010-11 and 4.5 per cent in 2011-12, eventually reducing unemployment as employers gain confidence.
In unusually strong language, Treasury said the speed and severity of the slump had "exceeded anything in living memory", with the sharpest and most synchronised contraction in global economic activity on record.
"The effects of the global financial crisis have surged through all advanced economies, destroying wealth, sapping confidence, and leading to a collapse in global trade," Treasury said. The expected growth slump and rise in unemployment have come despite the largest surge in government spending on record in 2009-10, with public investment expected to leap by 25 per cent as cash from successive stimulus packages flows through to increased economic activity.
Treasury estimated the Government's stimulus packages would lift growth by 2.75 per cent in 2009-10 and 1.5 per cent in 2010-11, supporting up to 210,000 jobs. Treasury said unemployment would have peaked at 10 per cent had the unprecedented spending surge not taken place.
But the spending program and the recession have taken a huge toll on the budget, producing the biggest deficits in recent history after an unprecedented deterioration in the Government's financial fortunes.
Net debt is expected to reach $188.2 billion in 2012-13, equivalent to 13.6 per cent of gross national product, producing a $7.6 billion annual interest bill, before being reined in to a more manageable level by the end of the decade.
Treasury is predicting a $57.6 billion deficit in 2009-10 after just a year ago forecasting a $19.7 billion surplus — a $77 billion deterioration.
Of this, about $45 billion has been due to the slower-than-expected economy — which has choked revenue collection — and about $32 billion because of spending decisions.
The deficit, 4.9 per cent of GDP, is the largest on record. Treasury has predicted a $57.1 billion deficit in 2010-11 and $44.5 billion in 2011-12.
The trade boom — the largest since World War II — is rapidly unwinding, cutting an average of $35 billion a year out of the economy. Since last year's budget, expected tax collections over the next four years have been downgraded by $210 billion. In this financial year alone the tax writedown is expected to be $23 billion, the biggest downward revision since 1930-31.
