Emergency tax cuts could be introduced in a fresh bid to prop up the economy as the Federal Government reels from the latest warning signs that Australia is heading into a deep recession.
Prime Minister Kevin Rudd, on his first day back from a three-week summer holiday, warned yesterday that the global economic crisis would get worse before it got better.
In a speech in Sydney, he called on bosses to do everything possible to protect their workers from dismissal and for workers to restrain any wage claims.
He also signalled that the Government was preparing to announce initiatives to add to the $36 billion of measures it had already undertaken to reinforce the economy.
Mr Rudd said the impact of the crisis would be big "but so will be our response".
"We are determined to chart a course that will see Australia through this crisis," he said.
"We will do so with a combination of steely economic management and compassion for those who need support."
But it was Treasurer Wayne Swan who fuelled tax cut speculation, saying Australia was in a strong position "to respond with further packages, whether it would be packages which would stimulate consumption through changes in tax, for example, or whether it was via a combination of investment in infrastructure and other measures".
He did not indicate, however, whether he was talking about cuts to personal or business taxes, or bringing forward personal income tax cuts already legislated for July this year.
Mr Rudd, at the first of a series of Australia Day events he will address over the next week, said all Australians had to "look out for each other" in the worst economic convulsion since the Great Depression.
"We are all in this together: business, unions, governments, the community sector — and every nation in the world," he said.
"The current economic turmoil is unlike any we have seen in our lifetime — and unlike any since the Great Depression of 1931."
Mr Rudd said the protection of jobs had to be a top priority, and both employers and workers had a responsibility towards each other.
"Employers must do their utmost to protect their workers from dismissal, knowing that these workers will serve them well when times turn good again," he said.
"Workers, too, must restrain any wage claims.
"I know there are employers who have asked their workers to accept shorter working hours rather than lose their jobs.
"That encourages me, because at this time Australians need to look out for each other — as we have done so many times in the past when the going has got tough."
The speech came a day after Access Economics became the first mainstream forecaster to state that Australia was heading into recession.
Despite Access's claim that Victoria was "on the brink of recession", State Treasurer John Lenders yesterday was standing by his forecast of 1.5pc economic growth this year.
A spokesman for Mr Lenders, Matt Nurse, said the global crisis had affected the Australian and State economies "as predicted", but Victoria was as well placed as anywhere to deal with it.
"Victoria has strong population growth, record levels of government investment in infrastructure, the highest level of building approvals in the country and our retail trade sector continues to grow," he said.
ANZ chief economist Saul Eslake yesterday downgraded his assessment of the international outlook, saying it would be reasonable to speak about the US and the UK entering "depressions" rather than recessions.
He expected Australia's Reserve Bank to cut its cash rate to an all-time low of 3pc in a bid to avoid an Australian recession.
The Melbourne Institute's updated inflation gauge, released yesterday, suggests that the Reserve will find few impediments to further cutting interest rates next month.
It found that prices fell in each of the last three months of last year, producing a negative quarterly inflation rate.
"These are unusual times," said the institute's Professor Don Harding.
"Based on the inflation gauge, we forecast that the December quarter consumer price index will fall 0.45pc.
"Lower petrol and fruit and vegetable prices are bringing the index down."
The Bureau of Statistics reported that new borrowing slid a further 6pc in November, to take it down 30pc on a year ago.
Commercial borrowing fell 10pc, lease finance 3pc and personal borrowing 2pc. Lending for housing climbed 1.4pc.
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