President Barack Obama’s first budget as US President will see the country’s deficit rise to a staggering $US1.75 trillion, amounting to 12.3% of GDP.
The proposed $US3.55 trillion budget places a large emphasis on tax hikes for the wealthy, healthcare reform, more funding for the war in Afghanistan and extra resources to help bailout the ailing financial system.
Get business news first
Sign up to SmartCompany’s daily newsletter
”The time has come to usher in a new era – a new era of responsibility in which we act not only to save and create new jobs, but also to lay a new foundation of growth upon which we can renew the promise of America,” Obama said in a statement.
”This budget is a first step in that journey.”
The budget includes almost $US1 trillion in higher taxes for the top two tax brackets, moving them from 33% and 35%, to 36% and 39.6% respectively. Capital gains taxes will also increase to 20%, up from the 15% rate set by the Bush administration.
The budget has also set aside approximately $US200 billion for the wars in Iraq and Afghanistan. But perhaps one of the biggest programs included in the budget is the $US634 billion for healthcare reforms, fulfilling a major campaign promise made by the new President.
Another $US250 billion has been set aside to bailout the financial industry if necessary, on top of last year’s $US700 billion bailout.
Obama hopes to cut the budget deficit from its current $US1.75 trillion to $US533 billion by 2013. But the Republican Party is almost certain to block the budget in Congress, objecting to what it calls the “tax and spend” philosophy of the Democrats.
The budget anticipates the US economy will contract by 1.2% in 2009 and grow by 3.2% in 2010.
But the budget was met with disdain from Wall Street, which closed lower on concerns that Obama’s healthcare reforms will hurt the profits of healthcare companies.
The Dow Jones Industrial Average fell 82.36 points or 1.13% to 7188.53. Oil prices also jumped 4% to $44 a barrel.
Back home, the Australian sharemarket has opened 0.7% lower following Wall Street’s lead. The benchmark S&P/ASX200 index was down 0.8 points or 0.02% to 3344.7 at 12.01 AESDT. The dollar was also up to US65 cents.
Commonwealth Bank shares have dropped 1.3% to $29.41, while BHP Billiton lost 0.6% to $28.43. Westpac has gained 1.1% to $16.84 while Wesfarmers also gained 3% to $17.33.
Woolworths shares have dropped 5.2% to $26.53 on news it has posted 10.3% growth in first half net profit to $983.3 million.
The company has also updated its full year net profit growth forecasts up 14%, while sales rose 8.8% to $26.1 million in the 27 weeks to 4 January.
OZ Minerals has managed to secure an extension on debt repayments, which has helped its prospects for clearing a $1 billion takeover offer from Chinese group Minmetals. The group also posted an annual loss of $2.48 billion.
“This result was impacted by falls in prices across our major commodities, significant impairment of assets and other asset writedowns, a number of one-off costs associated with the acquisition of Zinifex by Oxiana to form OZ Minerals and restructuring costs,” chief executive Andrew Michelmore said.
Fairfax Media has said it will undertake a capital raising to obtain $684 million, as chief financial officer Sanjay Naravan has resigned to be replaced by Brian Cassell.
Fairfax shares are in a trading halt ahead of the move, while chairman Ronald Walker says the decision came following market feedback regarding its first half results earlier this week.
“It has become clear to us that in these extremely unstable times, our shareholders are supportive of improving our balance sheet position,” the company said.