The economy will now grow 2% compared with a May forecast of 2.75% and unemployment will jump from around 4.3% (perhaps higher when the October figures are released later this morning) to 5% by June next year and 5.75% by June 2010.
Growth for 2009-10 was cut to 2.25%, compared to a budget forecast of 3%. The Reserve Bank will publish its new forecasts next Monday.
There was no shortage of business economists ready to dispute those figures and warn that the economy could very well slide into recession in the coming year, especially if job losses are worse than they are projected to be.
The government said in a statement and in a briefing with the media that the financial crisis will cut tax revenues by around $40 billion over the next four years.
Tax receipts have been revised down by $4.9 billion in 2009, $12.2 billion in 2010, $12.4 billion in 2011 and $7.9 billion in 2012. That will cut the projected surpluses from $19.7 billion to $3.6 billion in 2009-10, and from $19 billion to $2.6 billion in 2010-11.
Federal Treasurer, Wayne Swan said in a statement that: "While Australia is clearly not immune from the effects of the global financial crisis and the global downturn, we are better placed than most other countries to withstand the fallout".
Inflation will drop from 5% to 3.5%, still above the central bank's annual target of between 2% and 3%. It will reach 3% in the 2010 financial year.
Mr Swan colourfully told a media conference that: ''The global financial crisis has smashed a $40 billion hole in the budget. This is yet another dramatic reminder that we are not immune from the impact of the global financial crisis''.
Here's the statement Mr Swan released:
The Mid-Year Economic and Fiscal Outlook 2008-09 (MYEFO) released today shows that the Budget has felt the full force of the global financial crisis.
As a consequence of the global financial crisis, tax receipts are expected to be around $40 billion lower over the forward estimates than anticipated at the time of the May Budget.
Global economic conditions have changed dramatically in recent months as the global financial crisis has entered a dangerous new phase.
More than 30 financial institutions around the world have failed or been bailed out, and globally stock markets have suffered significant losses.
All members of the G7 group of advanced economies have now experienced negative growth at some time during 2008.
The sharp deterioration in the global economic outlook, and the resulting fallout for the Australian economy, is forecast to result in more moderate GDP and employment growth.
Real GDP growth has been revised down to 2 per cent in 2008-09, ¾ of a percentage point lower than expected at Budget.
The unemployment rate is forecast to rise to 5 per cent by the June quarter 2009 and 5 ¾ per cent by the June quarter 2010 as the impacts of the global financial crisis flow through.
In the face of these major challenges arising from the global financial crisis, the Government is continuing to budget for surpluses in 2008-09 and across the forward estimates. An underlying cash surplus of $5.4 billion is forecast for 2008-09 (0.4 per cent of GDP).
In accrual terms, the fiscal balance is expected to record a $5.8 billion surplus in 2008-09 (0.5 per cent of GDP).
However, the budget surplus projections are clearly much lower than forecast at the time of the May Budget and reflect the dramatic impact, particularly from 2009-10 onwards, of the recent escalation in the global financial crisis.
Almost all of the decrease in the surplus beyond 2008-09 is due to the significant reductions in revenue associated with the global financial crisis.
Policy decisions have had relatively little impact on estimated expenses and revenues in these years.
Expected taxation receipts have been revised down by $4.9 billion in 2008-09, $12.2 billion in 2009-10, 12.4 billion in 2010-11 and $7.9 billion in 2011-12.
These downward revisions to revenue are particularly the result of lower forecasts of capital gains tax due to the recent dramatic falls in global equity markets.
These revisions also reflect the substantial negative impacts on company profits of the credit market turmoil, weaker global growth, and from 2009-10, falling terms of trade.
While Australia is clearly not immune from the effects of the global financial crisis and the global downturn, we are better placed than most other countries to withstand the fallout.
The Government has taken decisive action to strengthen the economy and support Australians during these difficult global times, in particular by securing Australia's banking system through guarantees of authorised deposit-taking institutions deposits and wholesale funding and our $10.4 billion Economic Security Strategy.
The Government remains prepared to take the tough decisions necessary to protect our economy during the global financial crisis, and to implementing our long term agenda in the most responsible way.
