Senator FOREMAN —I direct my question to the Minister representing the Treasurer. The most recent edition of the OECD economic outlook of June 1995 includes a set of short-term economic forecasts which track prospects in member countries for a range of indicators. Could the minister inform the senate of the OECD's forecasts and analysis? In particular, how does Australia's economic performance compare with other OECD economies?

Senator COOK —I thank Senator Foreman for giving me a chance to put the OECD report accurately before the Senate. The OECD's latest six monthly economic outlook was released in Paris last night. It reviews economic performance and policies in the OECD member countries, including Australia, and contains the OECD secretariat's forecasts for 1995 and 1996.

  The OECD considers that the economic situation in most member countries remains good, although the OECD is now projecting a marginally lower recovery in the OECD region than expected six months ago. I would like to focus, though, on the economic outlook as it relates to the Australian economy.

  First, it should be noted that the OECD forecasts are consistent with the budget forecasts. The former are on a calendar year basis while our budget is based, of course, on the Australian financial year. Real GDP growth estimates for 1995 and 1996 are 3.8 per cent and 3.5 per cent respectively. This is above expected growth of the total OECD, which is 2.7 per cent for both years. So Australia is enjoying among the highest growth rates in the OECD.

  As for employment, in 1994 Australia's employment creation was more than three times stronger than the employment growth achieved by the whole OECD. For 1995 and 1996 employment growth is expected to be more than twice as fast in Australia as in the OECD as a whole. That means 225,000 new jobs in 1995—almost the number John Howard achieved over five years—five very long years!

  Yesterday I talked about the strength of business investment in Australia. The international comparisons make that performance look even more outstanding. The actual outcomes for 1994 show that Australia's business investment grew by 17 per cent compared to the OECD average of 5.2 per cent. In 1995 the forecast for Australia is for 14 per cent growth compared to the OECD forecast average of 9.1 per cent.

  I note that some commentators today have picked up on the implications of strong output, employment and inflation growth for inflation. It is worth setting out what the OECD `s actual analysis was. The report states:

An important factor underpinning the high growth in domestic demand during the past year has been the strength of business investment, which grew by around 17 per cent in 1994 and was fuelled by high and rising rates of capacity utilisation and improved balance sheet positions.

The analysis then points out that strong growth has reduced spare capacity in the economy and there is considerable uncertainty about how much spare capacity now remains. It then says:

As spare capacity of both capital and labour is used up, continued strong growth would tend to create inflationary pressures.

But—and this is the critical point—the report acknowledges that the government and the Reserve Bank have acted to forestall the risk of overheating by tightening monetary policy and by delivering a significant improvement in the budget balance.

  The government believes there is still considerable extra supply capacity in the economy and that micro-economic reform has increased the efficiency of current capital. The import figures yesterday point to continuing import of capital equipment which is continuing to expand our capital capacity. On the human resources side, the government has implemented an unprecedented program of skill development in Working Nation which is actively adding to the supply of skilled labour in the economy. So I think we can say that in the proper context, set against the rest of the peer group economies to which we compare ourselves, the Australian economy is performing better than most.