Dynamic Business

The International Monetary Fund (IMF) has encouraged the Australian Government to let the Federal Budget go into deficit for the longer-term benefit of preserving the Australian economy. The fund has predicted that Australia can expect a 0.2 percent contraction to the economy in the coming year.

Government spending has already softened the impact of the global financial crisis, says IMF spokesperson Ray Brooks, division chief of the IMF’s Asia Pacific Department: “It would be unwise to stop going. The budget has to go into deficit in these circumstances.”

Treasurer Wayne Swan says a budget deficit is ‘inevitable’ given the end of the mining boom and China’s decline. “What that means is because of the unwinding of China, the global recession, it will be inevitable that Australia has a temporary budget deficit,” he said, but reiterated that Australia is “much better positioned than many other countries”.

Brooks also believes that another hefty rate cut of one percent will also help to stimulate the economy. The Reserve Bank will announce the official rate tomorrow.