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Australia passes $27.4 bln stimulus plan

  Australian parliament passed a A$42 billion ($27.4 billion) economic stimulus package on Friday after a last-minute political deal rescued the government’s plan to try to avert the country’s first recession in two decades.

The move came after the government promised to spend almost A$1 billion to help fix the country’s ailing rivers, in a deal hammered out with key independent senator Nick Xenophon, who had voted with the opposition to defeat the package on Thursday.

Friday’s new vote, which backed the amended package by 30 votes to 28, boosted the Australian dollar on hopes the stimulus payments would reach households in time to avert recession in an economy badly hit by the global slowdown. “Australia cannot resist the international economic forces and we cannot defy the effects of the downturn in our region,” Prime Minister Kevin Rudd told parliament.

The stimulus package, the largest ever launched in Australia, is worth about 2% of gross domestic product in 2009 and 1.3% in 2010, with Treasury estimating it will lift growth by 0.5 points this year and 0.75% in 2009-10. The deal to resurrect the package is a major victory for Rudd, a day after he suffered his biggest parliamentary defeat since he won office in late 2007.

The conservative opposition parties, which hold the largest voting bloc in the upper house Senate, voted against the package, saying it was too big and would saddle future generations with ongoing government debt.

Treasurer Wayne Swan led negotiations with Xenophon on Thursday night and Friday morning, and said the government was willing to make a deal in the national interest. In the end, he promised to bring forward A$900 million of separate spending to help repair the rivers in Australia’s food bowl Murray-Darling basin, which has suffered a decade of drought and a century of over-allocating water for irrigation.

“I’m not sure whether this package is going to save this country from recession,” Xenophon told parliament. “I’m pleased to say I believe we have been able to reach a compromise, which while not giving everybody what they want, may give everyone what they need.”

Analysts had worried that any delay in distributing cash handouts worth A$12.7 billion could leave a hole in spending this quarter, and possibly lead to a drop in gross domestic product.

Under a deal to win Senate support from the Greens, the government trimmed the cash payments for millions of workers and families by A$50 each to a maximum of A$900, saving about A$400 million which will be spent instead on Green projects.

Late last year, the government announced a A$10 billion stimulus package which helped Australia skirt a recession. Six of Australia’s major trading partners are in recession and that is threatening to lead to job losses in Australia. (Reuters)