Finance news

Australian consumer confidence dropped in May after the government said it will push the nation into debt to counter a recession that may swell the jobless queue to 1 million within two years.

Australia’s dollar declined after Westpac Banking Corp. and Melbourne Institute said their consumer sentiment index fell 4.3 percent from April to 88.8 points. About 1,200 consumers were surveyed between May 11 and May 17. Treasurer Wayne Swan released debt forecasts in his annual budget on May 12.

The government is embarking on the nation’s biggest building program in history, driving its budget into record deficits until 2016 and swelling national debt. Prime Minister Kevin Rudd’s administration plans to reduce tax breaks, cut welfare payments and raise medical insurance costs for high- income earners as it boosts spending on infrastructure to revive the contracting economy.

“Consumers have been unnerved by the sharp rise in the government’s deficit and the associated ballooning of the national debt,” said Bill Evans, chief economist at Westpac in Sydney. “This is the second biggest fall in the index following the release of a budget in the last ten years.”

The confidence index was less than 100, indicating pessimists outnumber optimists, for a 16th consecutive month.

Australia’s currency dropped to 77.14 U.S. cents at 11:03 a.m. in Sydney from 77.29 cents before the report was released. The two-year government bond yield fell 2 basis points to 3 pay day loans.61 percent. The S&P/ASX 200 index slipped 0.2 percent to 3,811.7.

Government Debt

Swan said last week the budget deficit will be A$32.1 billion ($24.8 billion) in the year ending June 30, rising to a record A$57.6 billion in fiscal 2009-10 as a recession that will linger through next year drives up unemployment and erodes tax receipts. National debt will peak at 13.8 percent of gross domestic product in fiscal 2014, the government forecast.

An index measuring consumers’ expectations for economic conditions over the next five years fell by “an extraordinary 13.6 percent,” Evans said.

Confidence among consumers earning more than A$60,000 a year fell by 6.5 percent. Sentiment for those earning less than A$40,000 dropped about 5 percent.

Westpac’s Evans said consumer sentiment also deteriorated because of “disappointment that the Reserve Bank of Australia held rates steady at their May board meeting.”

Policy makers led by Stevens left the benchmark lending rate at 3 percent on May 5 amid signs the economy is likely to “record better outcomes than most other advanced economies in 2009 and 2010,” according to minutes of the board’s meeting published yesterday.

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Filed under: business, management by Finance Boss