Early tax cuts on the way? shares slide, German stimulus package: Economy roundup

Prime Minister Kevin Rudd has been advised to introduce $3.4 billion worth of tax cuts scheduled for July earlier than expected after yesterday’s horror job advertisement data.

Macquarie Bank senior economist Brian Redican says the Government must boost spending, even if the federal budget heads into deficit.

“There is scope to bring forward the tax cuts due for 2010-11, and the politicians will be thinking very hard about what they could do to lift the housing construction market,” he told The Australian.

Opposition leader Malcolm Turnbull also says the tax cuts should be introduced earlier than July.

“We argued last year that tax cuts should be brought forward,” Turnbull says today. “That is the best way to promote business activity which of course encourages people to take on employees, retain employees, invest, take risks – all those decisions that keep the wheels of industry moving.”

Shares slide on recession woes

Meanwhile, the Australian sharemarket has opened 0.8% lower today after disappointing trade on Wall Street overnight. The benchmark S&P/ASX200 index was down 69.1 points or 1.88% to 3614.2 at 11.45 AEDST.

BHP Billiton shares have fallen 2.6% to $30.04, while ANZ has dropped 1.7% to $14.83. NAB has also fallen 1.7% to $20.29, with Westpac dropping 1% to $16.28. Telstra shares have gained 1.1% to $3.69.

The dollar has also lost ground, sliding back to US67c.

But the big corporate news came from Rio Tinto, which has postponed a $3 billion expansion to its Corumba iron ore mine in Brazil, citing the global downturn.

“It is important to note that we retain the option to pursue that expansion when credible signs of the market recovery are seen, but until such time we have postponed it,” Rio Tinto spokesman Gervase Greene says.

The move comes after substantial job cuts and deferral of capital expenditure to help shield the group against the financial crisis.

Global recession woes grow

Last night the Dow Jones Industrial Average fell 1.46% as fears of a deepening recession pushed the price of oil down 8% to below $US38 a barrel.

Markets took little cheer from the news that Germany’s ruling coalition has reached an agreement regarding a stimulus package worth €50 billion. The Conservatives and Social Democrats have struck a deal that will focus on infrastructure and education projects.

Also included in the deal are incentives worth €2500 for new cars, and one-off payments of €100 for each child in Germany.

Outlook improving?

But some good news today – the G10’s central bankers say the economy will start to pick up in 2010, but will experience a sharp slowdown during the coming year.

“If there is (the) overall sentiment that the global economy will slow down significantly in 2009, with industrialised economies having negative figures, it is also noted that 2010 should be the year of the recovery,” European Central Bank head Jean-Claude Trichet says as the spokesman for the G10 central bankers meeting.

“The large part of the slowing down that has been observed comes from the confidence channel and it is important for all authorities… to do whatever is appropriate to preserve confidence… and permit again the channel of confidence to function positively after having functioned in a negative direction over the second semester of last year,” he says.