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Tuesday, 17 March 1987
Page: 887


Mr HOWARD —I refer the Prime Minister to last Friday's report by the Indicative Planning Council in which the expected level of housing activity in this financial year was again revised down. Does the Prime Minister acknowledge that the main reason for this revision is that the Council has now assumed that home loan interest rates will not fall from their current record levels in 1987? Is it a fact that this assessment by the Council is totally consistent with the confidential briefing document prepared by Dr Hawkins and tabled in the Senate by Senator Ryan last month? Would the Prime Minister describe the Indicative Planning Council as `a non-relevant economic forecasting section of government which does not have access to joint economic forecasting group forecasts and is not close to the management of the economy'-the words used by him in relation to Dr Hawkins? Does the Prime Minister now concede that home loan interest rates have no hope of falling in 1987 under the existing policies of his Government?


Mr HAWKE —I am indebted to the Leader of the Opposition for the question. I am not entirely surprised that he asked it. A number of things need to be made quite clear. I hope that I will be allowed to do so. The IPC report to which the Leader of the Opposition referred is explicit that it has made `a working assumption' about interest rates. The report states:

Restraint in labour costs, a lowering of inflation and steady improvement in the balance of payments would provide circumstances in which market interest rates would fall. The potential for reduction has been enhanced by the foreshadowed May Economic Statement. At this stage, the outcome of the May statement and the subsequent Premiers' Conference are not known. In the interim, the Council believes that it would be in- appropriate to assume that lower market yields will lead to a decline in mortgage rates much before the end of the forecast period.

That is the quite straightforward, uncomplicated quote about the working assumption. It is absolutely clear from that that the IPC report is at one with this Government in identifying the basis on which one could expect to see a sustained fall in interest rates.

As the Leader of the Opposition is interested, let us therefore look at the evidence-not the assertions of the Opposition's strange economic reasoning-which has been used by the Treasurer and me in our statements to support the position that we have put. First, the balance of payments is showing improvement. The February balance of payments statistics show only the second surplus on merchandise trade since mid-1985. Manufacturing exports are up by 32 per cent so far in this financial year, compared with the figures for last year. The service deficit-that is, of course, tourism, transport, et cetera-is down by 18 per cent. The seasonally adjusted merchandise trade deficit is down by 60 per cent in the last three months. The forecast overall deficit for 1986-87 has now been revised down to $14 billion, with a significant further fall expected in 1987-88. So that is the position in regard to what we see as the fundamental improvement that is occurring in the balance of payments sector.

Secondly, I go to the quarterly movements in inflation. Those movements have peaked as the effects of the very massive depreciation have washed through. The figure for the December quarter-a very high figure-represents in the considered judgment of the Government a peaking of the inflationary impact of that depreciation. Thirdly, and most importantly, we now have laid down by the Conciliation and Arbitration Commission a new two-tier wages structure which we believe provides a basis for a continued moderation in wages movements. That comes after a 6 per cent decline, I would remind the Leader of the Opposition, in real unit labour costs over the last four years. That is the positive outcome of the policies adopted by this Government which has produced, for the first time in the history of this country, a real decline in wages at a time of real economic growth. The contribution of the trade union movement in producing that decline and its associated 750,000 increase in new jobs should be recognised. The great contribution of the trade union movement should be recognised rather than the trade union movement being made a scapegoat by the Leader of the Opposition, who says that he is to introduce a referendum to abolish something that does not exist. That is the measure of what exists in the mind of the Leader of the Opposition.

The third piece of evidence, after referring first to the balance of payments factors and to the inflation factor, is that what has happened in the area of wages will serve to maintain the significantly improved competitiveness that Australian industry is now enjoying. Fourthly, and most importantly, this Government, as is now well known, is clearly committed to another tough Budget, a commitment which our record clearly shows we will deliver upon. The figures are quite clear. They are increasingly in the minds of the Australian electorate. From those opposite we inherited a $9.6 billion 5 per cent of GDP deficit, and we have steadily, remorselessly and in a committed way reduced that deficit from 5 per cent of GDP down to 1.5 per cent, from $9.6 billion to $3.6 billion, and we will do more in this Budget.

It is quite clear, therefore, that there exists on any dispassionate analysis evidence in each of these four areas to sustain the assumptions which the Treasurer and I have used to make the statements that we have. It is clear that the Government accepts that mortgage rates would be likely to be slower to change, as is always historically the case. We would say that the general levels of interest rates will decline and that mortgage rates will come down after that. The position is clear and indisputable that the conditions to bring about those changes are in place.

I would also note-and I hope that the Leader of the Opposition will not be too distressed about the fact-that interest rates have already eased somewhat. The 90-day bills are already about 2 per cent below the peak of 1986 and the 10-year bonds have also eased significantly down a quarter of a per cent in recent days. Those are the facts, and it is completely misleading to claim in these circumstances that the IPC report is in any way inconsistent with the Government's statements on interest rates.