CANBERRA - AUSTRALIA'S parliament rejected the government's A$42 billion (S$42.3 billion) economic stimulus plan on Thursday, dealing a major blow to Prime Minister Kevin Rudd and delaying the timing of cash payments to millions of workers and families.

The vote in the upper house Senate was tied, leaving it short of the necessary votes to be passed. The government said it would re-introduce the laws immediately to the lower House of Representatives, and would recall the Senate to debate the plan again from Feb 23.

The Australian dollar fell from US$0.6580 to US$0.6540 after the Senate vote, which the government said would led to a drop in domestic confidence in the Australian economy.

'Fundamentally defeat of the package is a huge decision, a decision that calls into question confidence in the Australian economy, puts at risk more jobs, puts at risk more businesses,' Government Senate Leader Chris Evans told parliament.

'This government is absolutely committed to get this package through.' If the Senate rejects the laws again after an interval of at least three months, it would give Mr Rudd a legal trigger to allow him to call an early double-dissolution election.

The stimulus package fell short in the Senate over a relatively minor issue, with independent senator Nick Xenophon wanting the package to include measures to speed up the spending of A$3 billion to support the ailing Murray-Darling river system.

'The government has said no, and so I must say no to this stimulus plan,' Mr Xenophon told parliament.

The result is a major defeat for Mr Rudd, who said the stimulus spending was needed to protect Australia's economy from falling into recession due to the impact of the global downturn.

Mr Rudd announced the new spending on Feb 3, with about A$12.7 billion in cash payments to workers and families as immediate stimulus, and A$29 billion for longer-term infrastructure projects.

But the proposed cash payments to millions of workers and families will now be postponed, delaying any impact the spending would have on the slowing economy. -- THOMSON REUTERS