Budget deficit to soar, growth to slow

The federal government says today's $42 billion stimulus package will add to gross domestic product growth but the budget will enter into a $22.5 billion deficit this financial year.

It follows comments from Prime Minster Kevin Rudd yesterday that the global economic crisis has left a $115 billion hole in Australia's revenue.

Today, the government has forecast the 2009/10 budget to fall further into the red with a deficit of $35.5 billion.

Mr Rudd said today nobody liked being in deficit.

"This is not a question of choice. This is what we are required to do," he said.

Mr Rudd said the key issue was the medium-term strategy to exit from deficit and the government had established a policy framework to return the budget to surplus.

When economic growth resumes to trend - regarded as about three per cent - or above, action would then be taken to restore the budget to surplus, he said.

Additional tax revenues when economic growth had reached three per cent or higher would be dedicated to restoring the surplus while future discretionary spending would be limited to two per cent a year.

"This is the doctrine that we embrace here formally for returning the budget to surplus," he said.

"Nobody knows how long and deep this part of the economic cycle will be."

Treasurer Wayne Swan said today the implementation of the $42 billion stimulus package will add around 0.5 per cent to GDP growth in fiscal 2009, and a further 0.75 per cent in the following year.

Meantime, the government has also lifted its jobless forecast, with the unemployment rate forecast to rise from 5 per cent to 5.5 per cent in fiscal 2009.

In the following financial year, the government has forecast a jobless rate of 7 per cent, up from a previous estimate of 5.75 per cent.