By Gemma Daley
Oct. 15 (Bloomberg) -- Australia's A$10.4 billion ($7.2 billion) economic stimulus package won't feed inflation and may be followed by extra spending as the global financial crisis freezes credit and slows growth, deputy prime minister Julia Gillard said.
``We do not believe this package is inflationary, this package is about growth in difficult times,'' Gillard told Melbourne Radio 3AW today. ``We are going to continue to act, if that is necessary. The challenge in front of us now is the slowing growth.''
The government will spend A$4.8 billion on lump-sum payments to the elderly, A$3.9 billion on families and A$1.5 billion on payments for first home buyers. It aims to boost consumption and investment as financial turmoil slows job growth and the A$1 trillion economy.
Inflation accelerated in the second quarter to the fastest pace in two years. At the same time, the economy slowed to the weakest pace in more than three years, expanding 0.3 percent from the previous three months.
``The global financial crisis is now feeding into the real economy,'' Gillard, 47, said, adding that employment would also rise.
Moody's Investors Service said the package would not affect Australia's Aaa credit rating, according to an e-mailed statement today.
`Sizeable Package'
The spending, starting Dec. 8, will halve the 2008-09 budget surplus, forecast in May to be A$21.7 billion. The spending will still leave a ``comfortable'' surplus, Treasurer Wayne Swan said earlier today.
``This is a sizeable package, it's about 1 percent of GDP and is designed to boost demand, to act as a buffer,'' Swan, 54, told Australian Broadcasting Corp. radio. ``We will remain comfortably in surplus, we will remain in surplus after this package.''
The government in May forecast a A$19.7 billion surplus for 2009-2010 and A$19 billion the following year. It is due to update those figures in its mid-year budget review in the next month.
Prime Minister Kevin Rudd said on Oct. 12 the government would guarantee all deposits and ``term wholesale funding'' among the nation's banks. He also doubled the government's investment in residential mortgage securities to A$8 billion in a bid to unlock credit.
European Guarantee
European nations have committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders amid the global credit crisis. Britain took majority stakes in Bank of Scotland Group Plc and HBOS Plc as a global lending freeze threatens to push the world into recession.
The U.S. will spend $700 billion buying toxic bank debt, including a $250 billion investment in bank stocks. Federal Reserve Chairman Ben S. Bernanke led co-ordinated interest-rate cuts around the world last week.
The Reserve Bank of Australia earlier cut its benchmark rate by 1 percentage point to 6 percent, the biggest reduction since a recession in 1992.
To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net
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