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Monday, 27 June 1994
Page: 1988

Senator SHORT —I preface my question to the Leader of the Government in the Senate by referring to the fact that yesterday the Treasurer conceded that the government would resort to tighter monetary and fiscal policy—that is, higher interest rates and higher taxes—to control inflation and to attempt to make the economic recovery sustainable. Why was there no mention in those policy options of adjustments to the cost and supply side of our economy, such as reductions in business taxes and further labour market reform, that are the real key to sustained recovery? Further, I ask: why does the government refuse to concede that it is reductions in business taxes, reductions in budget deficits and reductions in government regulations that are the key to investment and jobs?

Senator GARETH EVANS —There is no ground for any suggestion, as was implicit and, indeed, partly explicit in Senator Short's question, that there is any risk so far as the inflationary environment in Australia is concerned. There is every reason to believe that that is simply not the case. There is no ground for concern, and we can expect a very good inflationary outcome to continue well into the future.

  By comparison with most other countries, particularly the United States, there is still a significant degree of unused capacity in the Australian economy. Wage pressures continue to be extremely low, as evidenced by the increase of only 0.5 per cent in average weekly earnings over the year to the March quarter. The ACTU and the government are committed, with a recent further agreement about the $8, to wage outcomes consistent with maintaining inflation absolutely comparable with or better than that of our major trading partners; wage increases are increasingly being linked very directly to productivity improvements which will guarantee just that. Australia is a much more open and internationalised economy and, as a result, firms have a greater incentive to contain price increases than used to be the case in the past. A great many firms have lowered their cost structures through extensive workplace bargaining and inflationary expectations—an important indicator of the future—are at historically low levels with the Melbourne Institute's index falling, for example, again in June.

  It is the case that if and when inflationary pressures, not necessarily inflation itself but simply inflationary expectations, start to rise in a rationally founded way, the government will consult with the Reserve Bank in relation to any decision to raise interest rates. We have said right from the outset of this whole debate that one has to anticipate a situation, as pressure for funds increases as the recovery gathers pace, in which the cost of money will rise. We will have to take that into account as well as taking into account some of the pressures that are being generated from overseas. But one has had a situation of fiscal policy being tightened in the 1994-95 budget and one also has a situation where the deficit that is forecast for 1996-97 is now, in fact, not over, not around, but less than one per cent of GDP.

  That is the background against which the government is crafting its fiscal and its monetary policy. Again, I draw attention to the contrast with the absolute fiscal irresponsibility of the opposition. Like a great lolloping labrador, Alexander Downer loves going around offering political bones to miscellaneous interest groups here, there and everywhere about what sorts of tax concessions he will offer, wagging his tail for approval, dripping saliva and saying, `What a good little doggy am I' but, at the same time, creating an environment where the opposition is simply not answering the basic questions about the overall condition of Australia's fiscal future. The opposition cannot create a $8 billion hole through taxation offers of one kind or another plus expenditure offers of one kind or another without demonstrating how it will not, in fact, contribute massively to inflation through total irresponsibility on its part. So Senator Short should not lecture me.

Senator SHORT —Mr President, I ask a supplementary question. I can understand the minister's testiness, given the way he has been trying to act in the last couple of days. If the government really believes that the rosy scenario that Senator Evans has painted is real life, why did the Treasurer make it clear yesterday that tighter fiscal and monetary policies—that is, higher interest rates and higher taxes—are on the way?

Senator GARETH EVANS —He did not make clear anything of the kind. The Treasurer, being an absolutely cautious and totally responsible manager of this economy, made the point—as he has always made the point in every public utterance—that one cannot ignore the possibility of some adjustments of various monetary or various fiscal levers being required at some stage in the future. We have said, the Treasurer has said, the Prime Minister has said, I have said in this place over and over again that one does have to anticipate that, as the recovery cycle moves down the track, there will be some extra pressure on interest rates—we know that. We know that some adjustments at some stage will have to be made.

  The point is: we will not make those adjustments now. We will not do it in relation to the demands that are being made upon us by a financial market that is simply not paying regard to the fundamentals of this economy. We are not, like the opposition, barracking for the bond holders. We are barracking for Australian home owners. We are barracking for those who want to maintain rates low enough to enable us to get the investment flowing that we need to get the jobs growth flowing in this economy. We are being responsible. It is about time the opposition lifted its game.(Time expired)