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Tuesday, 1 February 1994
Page: 4

Mr SWAN —My question is directed to the Treasurer. It concerns the pace of economic recovery in Australia. In light of the latest available information, has the government revised the economic forecasts that were made at the time of the last budget?

Mr WILLIS —I am certainly pleased to respond to this question from the honourable member for Lilley because recently we have seen a spate of good economic news. We have seen very good figures coming up on job vacancies, employment, inflation, business and consumer confidence, retail sales, and even the balance of payments. In the light of all of these good economic figures, we certainly have significantly upgraded our budget forecasts.

  Towards the end of last year my predecessor indicated that there were some revisions taking place, and he mentioned a couple of those. Since then, even those figures have been further revised. What we have now is a picture where gross domestic product, which was forecast in the budget to grow by some 2 3/4 per cent this year, is now expected to grow by 3 1/2 per cent. That rate of growth is well in excess of virtually every other country in the OECD. In the course of 1993 the OECD countries as a whole were growing by 1.1 per cent; we were growing at over three per cent. Quite clearly, we are doing extremely well compared with similarly developed countries.

  A major factor in that increased growth of the GDP is that we expect to do better on private consumer expenditure because of higher employment growth and very high levels of consumer confidence. Business investment is expected to be strong. In the budget this year it was not expected to do much, but it has started to grow significantly. We expect net exports to provide a greater impetus to growth. They were expected to give a quarter of one per cent to growth of GDP. We now expect it to be around one half of one per cent because of a stronger performance by our exports. Overall this year in volume terms our exports are growing by some seven per cent against the 5 3/4 per cent forecast in the budget.

  That growth of GDP has had its reflection in employment. In the budget we forecast growth in employment of three-quarters of a per cent for this year compared with last year. Through the year that meant a growth in employment of about 100,000 additional jobs. We have now upgraded that forecast in light of the very strong growth in employment in recent times. We expect growth this year to be 1 3/4 per cent compared with the three-quarters of a per cent in the budget, and growth through the year to be around 200,000 jobs, not 100,000. We have already had growth of 116,000 in the course of this financial year. So we have already exceeded the budget forecast. The growth of 200,000 clearly sits well with the experience to date.

  We suspect that the participation rate will remain somewhere around 63 per cent—where it is at the moment—which means that, despite that higher employment growth, this year we are not going to make any further substantial headway on the unemployment rate, which was forecast in the budget to be around 10 3/4 per cent, and we expect it still to be around that in the course of this year. Of course, a continuance of employment growth of this kind will certainly begin to make substantial headway into unemployment in subsequent years.

  The consumer price index was forecast to grow by 3 1/2 per cent. We now expect that growth to be much less. Everyone will be aware of the recent figure of 0.2 for the December quarter. For the year as a whole, we are now looking at two per cent. That much reduced inflation forecast, sitting against a much stronger rate of growth in the economy—there is a tremendous conjunction of figures here—is coming from strong productivity growth of about 2 1/2 per cent in the 12 months to September which, of course, is keeping unit labour costs down, reduced petrol prices through falling world crude prices and some appreciation of the dollar recently, and also increased discounting. We have also seen low mortgage interest rates and consumer credit charges. All of these factors are fitting into a much reduced consumer price index, a lower rate of inflation. The current account deficit is also expected to be better despite the higher growth. We forecast 4 1/4 per cent of GDP in the budget; we now expect it to be around four per cent.

  If I can make a couple of points about those figures, the prospects clearly are very encouraging. Not only are economic growth and employment now increasing substantially but also we have the best conjuncture of economic fundamentals for 30 years. We have the lowest rate of inflation in 30 years, below the rate of our major trading partners. We have inflationary expectations at very low levels. Recent surveys show that 80 per cent of businesses expect inflation to remain below four per cent for the rest of this century. Interest rates are at their lowest in 20 years. Our international competitiveness is at its best in 20 years. The level of industrial disputation is the lowest since the mid-1960s. Productivity is increasing substantially. Most importantly of all perhaps is the attitudinal change: the willingness of people to embrace change in the workplace, to improve productivity, to get into exports and, in short, to see the rest of the world as an opportunity, not as a threat.

  We have been achieving this relatively high growth despite low growth in the rest of the developed world, as I mentioned. We have been helped in doing that by the Asian economies. The rest of the developed world is expected to pick up its game in 1994 and even more so in 1995. That will obviously help us to grow faster, to increase employment and to improve our balance of payments by improving commodity prices. We expect that in 1994-95 we will be growing at a rate of around four per cent.

  We are also on target to achieve our accord objective of 500,000 jobs in this term of office. We have had an increase in employment so far of 125,000. We expect an increase of 200,000 in employment in this financial year, as I mentioned. We should attain at least the same rate of employment growth in 1994-95, if not more. So we are well on target for 500,000 jobs before March of 1996, by which time we should have achieved significant reductions in the level of unemployment. In short, we are magnificently positioned for a sustained period of strong economic growth, major employment growth and reductions in unemployment and rising living standards. To continue to do all of this requires the government, business, unions and the working people of this country to all keep pulling together on the program of reforms that have brought us to this point.

  Let us not be shy about this. This is not some historical accident that is occurring. We are in this position because of the efforts we have made as a nation to rejig the whole economy, to make it much more internationally competitive, to be much more efficient and to be able to hold its place in the world, to get exports out there to compete with imports, and to get back on a high growth, low inflation path—something this nation has not enjoyed for 30 years. I am confident that we can continue to do that, and if we can a magnificent future awaits this nation.