AN $8 billion spending spree on major projects, designed to create 35,000 jobs next year and ensure Victoria is "recovery ready" when the world emerges from recession, was the centrepiece of yesterday's state budget.
But the record investment on infrastructure will not prevent tens of thousands of Victorians from losing their jobs next year as the worst economic crisis since the Great Depression sweeps the state.
Treasurer John Lenders will drive the state dramatically deeper into debt to help pay for the program, nearly half of which comes from the Rudd Government.
But it won't be enough to offset the effect of the global recession, with state Treasury forecasting a sharp jump in the unemployment rate, from 5.7 per cent now to 7 per cent next year and 7.75 per cent in 2010-11.
This suggests a net increase of at least 38,000 in the number of unemployed next year, taking the jobless figure from 160,000 to almost 200,000. The number out of work is forecast to peak at about 225,000 in 2010-11.
Mr Lenders acknowledged that "no one likes those figures" but said the Government was doing all it could to protect jobs, keep the state out of recession and maintain a budget surplus.
"This is not just a budget, this is also a jobs package," he said. "In the chill winds of the global recession, governments have no choice: you either stand with your community and assist with jobs or you say it's all too hard."
One of the few surprises in the austere budget was a $120 million extension of the state's first home buyers' grant, which had been scheduled to expire in July but will now be offered for another 12 months, skewed towards couples who build a new house.
To the disappointment of business, the budget contains no tax cuts, with the Government directing all available revenue to job-creating programs.
The infrastructure investment in areas of state responsibility is scheduled to pull back from about $8 billion next year to an average of about $4.5 billion over the following three years.
It will push government debt up from $2.2 billion or 0.8 per cent of the state economy last year to $15.7 billion or 5.3 per cent of the economy in 2012.
Mr Lenders said that debt as a proportion of the economy would then be reduced.
The State Opposition said Labor's "addiction to debt" could imperil Victoria's prized triple-A credit rating, lost during the previous recession in the early 1990s and regained in 1998 under the Kennett government.
The Opposition's attack was blunted by a statement last night from international ratings agency Standard & Poor's that the state budget settings were "consistent" with the triple-A rating.
"The strength of Victoria's balance sheet prior to the economic downturn has meant that the state has some capacity to undertake additional capital expenditure without threatening its triple-A rating," Standard & Poor's credit analyst Anna Hughes said.
But she added: "The rating could be put under pressure if the broader downturn is deeper and longer than forecast and the state's operating position and balance sheet deteriorate further."
The budget contains grim forecasts for the state economy, with Mr Lenders acknowledging in his speech to Parliament: "We do not know how far-reaching the impacts of this downturn will be; no one can predict exactly when the global recovery may kick in."
The state economy is expected to grow by just 0.25 per cent next year, before reviving to 2.25 per cent in 2010-11 and 3 per cent in the next two years.
The budget surplus is forecast to be just $165 million next year before improving to an average of $349 million over the following three years.
The bottom line was hit hard by the Black Saturday bushfires, with Mr Lenders revealing the bill for the Government from fighting the February 7 fires and funding the rebuilding of devastated communities would be nearly $1 billion. This is on top of the $330 million raised by the bushfire appeal fund.
Business embraced the budget, but farmers said it failed rural Victoria and environment groups condemned what they said was a lack of attention to reducing the state's carbon footprint.
The Victorian Employers Chamber of Commerce and Industry said Mr Lenders had produced a "solid, jobs-focused budget", while the Australian Industry Group described it as a budget for the times.
The Victorian Farmers Federation said country Victoria had "again been left with projects that will focus predominantly on major provincial centres rather than small rural communities".
Environment Victoria said the lack of investment in climate change "makes this budget look like it was written in 1989, not 2009".
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