By Gemma Daley
Feb. 12 (Bloomberg) -- Australia’s Senate rejected a A$42 billion ($28 billion) stimulus package aimed to prevent the country’s first recession in 18 years after an independent lawmaker demanded increased spending for his constituency.
Prime Minister Kevin Rudd said the government would reintroduce the legislation “urgently” after the bill was defeated in a tied vote. The government will have to make further concessions to Senator Nick Xenophon before a new vote as early as tomorrow.
The first significant legislative defeat since Rudd won office in November 2007 will complicate efforts by the government and central bank to revive the economy. The Reserve Bank of Australia last week cut the benchmark interest rate to 3.25 percent, the lowest since 1964.
“It is crucial this package goes through,” said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. “If there are major changes or delays, it would exacerbate the recession we are already in.”
The government wants to distribute A$12.7 billion in cash to families and low-income earners and spend A$28.8 billion on schools, roads, hospitals and energy efficiency. That will send the budget into deficit in the 12 months ending June 30, the first shortfall in seven years.
The Australian dollar dropped to 65.40 U.S. cents at 5:56 p.m. in Sydney from 65.88 cents just before news of the defeat.
Xenophon, whose vote was critical to pass the legislation, wanted spending to improve the Murray-Darling River system, which runs through his home state of South Australia. Farmers along the river system produce almost half of the nation’s agricultural output.
‘Must Say No’
“I must say no to this stimulus plan,” Xenophon told the Senate in Canberra. “A credible stimulus package cannot ignore the Murray-Darling.”
Xenophon said later in an interview with Australian Broadcasting Corp.’s 7.30 Report that he hoped he could “thrash out” a solution with the government in the next 24 hours.
The tied vote in the Senate meant automatic defeat of the legislation. President Barack Obama is also having to offer concessions to U.S. lawmakers to pass his stimulus plan.
Australia’s Liberal-National coalition, which has 36 of the total 76 Senators, opposed Rudd’s package, saying it was too large. The coalition wanted scheduled tax cuts brought forward to replace the one-off cash payments.
Slowing Growth
Australia’s economy grew 0.1 percent in the third quarter from a month earlier, the weakest pace in eight years. It expanded 1.9 percent from a year earlier.
By comparison, Japan’s economy contracted 0.5 percent in the same period and the U.S. shrank 0.2 percent in the fourth quarter from a year earlier.
The Australian economy would contract in the next fiscal year without the stimulus, Treasury forecasts showed last week. The increased spending will help gross domestic product grow 1 percent this fiscal year and 0.75 percent in the year ending June 30, 2010, it said.
“This global crisis now affects Australia fundamentally,” Rudd told parliament after the vote was defeated. “These measures are urgent and in the national economic interest.”
Investment bank Macquarie Group Ltd. and mining and energy producer BHP Billiton Ltd. are among companies firing workers. Job advertisements slumped for a ninth month in January, according to a report this week.
Adding Jobs
Australian employers added 1,200 jobs in January and the unemployment rate rose to 4.8 percent from 4.5 percent as more people looked for work, the Australian Bureau of Statistics said today.
Voter support for Rudd’s Labor government increased after the package was unveiled last week, according to a Newspoll published in the Australian newspaper this week.
Support for Labor rose 4 percentage points to 58 percent, according to a poll of 1,133 people. The survey had a margin of error of plus or minus 3 percentage points.
To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net
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