ANALYSIS: Australians reel as Rudd racks up record debt

Sydney - Prime Minister Kevin Rudd took office 18 months ago promising Australians they could expect Labor to continue posting big annual surpluses in the national accounts. The opposition Liberal Party, which had no debt and a surplus of 22 billion Australian dollars (16 billion US dollars) when desks were cleared out and it handed over the government, is now warning that Rudd could leave the top job having rung up 188 billion Australian dollars on the national credit card and never having delivered an annual budget in surplus. 'It will probably take 10 or 20 years to pay that off, so kids that are being born today will be inheriting that debt, and it will be their debt when they're adults and when they're in the workforce,' said Peter Costello, who was treasurer all through the 11 years John Howard and his Liberals were in office. Wayne Swan, Rudd's treasurer, expects a budget deficit of 57 billion Australian dollars in the next fiscal year beginning July 1. The deficit this year is tipped to be 32 billion Australian dollars. 'This budget is forged in the fire of the most challenging global economic conditions since the Great Depression,' Swan said when tabling the annual accounts in the Canberra Parliament on Tuesday. 'Global recession has been unleashed on Australia with a brutal, uncompromising force.' Prices for coal, iron ore and other crucial export commodities have collapsed. Consumers have steered clear of the shops, fearing they will lose their jobs and their houses. Tax receipts, both from companies and individuals, have withered as income has fallen away. Swan said 210 billion Australian dollars in lost tax revenue would keep the budget in deficit until at least 2015. 'It will take time and it will take discipline,' Swan said about his plans for returning public finances to surplus. Remarkably little time, if official figures are right. Swan predicts the economy will rocket back to health beginning 2011, when output would leap 4.5 per cent. It's a very optimistic scenario - one not shared by the International Monetary Fund, which foresees a slow recovery from global recession rather than a speedy one. Swan says East Asia should be growing at 2.5 per cent three years from now, whereas the IMF sees just 1.4 per cent. 'Having blown all the proceeds from the last mining boom, Labor is betting the house on another upswing that hasn't even begun yet,' opposition treasury spokesman Joe Hockey said. Peter Anderson, head of the Chamber of Commerce and Industry, agrees with Hockey, saying Labor's strategy for getting back in the black 'relies heavily on the recession being relatively short - if the recession is long and deep the financial framework of the budget will need to be revised.' Swan argues that mammoth public spending was essential to cushion the global downturn, save jobs and prop up industries. There were huge fiscal stimulus packages delivered in July and in February. 'We were determined to respond with immediacy, purpose and effect,' Swan explained, repeating his mantra of 'go early, go hard, and go household.' The stimulus packages - derided by the Liberals as 'cash splashes' that were squirreled away rather than spent - were recommended by the IMF as an antidote to a deep recession. The same fiscal medicine was being prescribed in Washington, London and even in thrifty Beijing. Some economists are unperturbed by the prospect of the nation's biggest-ever run-up in debt. Macquarie Bank chief economist Brian Redican noted that it's standard policy for governments to spend during a recession to counter the dampening effect of individuals not spending. Running a deficit is not in itself bad - only the scale. 'It's to the government's credit that it has reacted more quickly than in the past and (more quickly) than overseas, but it does present an eye-stopper of a very large deficit,' Redican said.