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Tuesday, 21 June 1994
Page: 1775

Senator HILL —My question is directed to the Leader of the Government in the Senate. I refer to expectations expressed today by respected economists that, as a result of the government's lax fiscal policy, interest rates are expected to rise by at least one per cent in the near future. Does the minister appreciate that this will add $864 a year to the average home loan? When will the government come clean and acknowledge that a failure of its policies will result in interest rate rises and that new home buyers and small businesses should be factoring this into domestic budgets and business plans?

Senator GARETH EVANS —On the substantive matters in issue, I have nothing to add to what I said yesterday which, in essence, was that at some stage of the recovery interest rates will need to rise to ensure that inflation remains low. Official interest rates have fallen to their lowest level since the 1970s and we have to expect that there will be an increase in rates at some stage of the recovery. But interest rates will not rise in the near term because inflation in Australia is at historically low levels and is among the lowest in the Western world. That is the truth of the matter. Those are the fundamentals of the Australian economy, and there is no rational basis for any interest rates rise in the near term given that particular inflationary environment.

  On the subject of fiscal responsibility generally, we do not need to be lectured by the likes of Senator Hill and the opposition on this particular matter. Our responsibility has been to identify a path of fiscal management by this country which will return to budget in approximate balance within a few short years, 1996-97. That has been universally acknowledged to be a totally responsible approach to be adopted by the government and it is one that is, in fact, perfectly capable of achievement in a way that will produce a sustained low inflation but, at the same time, high growth environment.

  The contrast is quite spectacular between the responsible approach that has been adopted by the government and the conspicuously, vulgarly, populist, opportunistic approach that has been adopted by members of the opposition on this as on every other matter. They sing with different tunes and different songs. Mr Costello says he wants a balanced budget; Mr Downer, of course, wants to spend money on everything under the sun that will appeal to this or that interest group as he systematically works his way around hawking his body to this or that interest group in an attempt to get away from the desiccated imagery of his predecessor.

  He has not persuaded anybody so far; he will not in the future because there is no substance or integrity in the opposition's policy. Those opposite might have changed their leadership, they might have changed their front bench, but there is an iron law of arithmetic that applies in this sort of situation; that is, nothing plus or minus nothing still equals nothing.

Senator HILL —Mr President, I ask a supplementary question. Is it not the real case, as Mr Mark Hopkinson, the head of financial markets in Schroeders, said this morning, that the political stakes are pretty high in this exercise? Is it not the real fact that the government is concentrating on the internal political consequences rather than giving Australian business and home buyers a real appreciation of what is to logically follow from its fiscal failures? Does the minister not recognise that yesterday bond yields soared to their highest levels since April 1992 and short-term interest rates rose sharply? Does this not logically mean that in the relatively near future there will be a substantial lift in interest rates, speculated today to be at least one per cent? The government should be advising home buyers and small business to be taking this into account.

Senator GARETH EVANS —I made perfectly clear that, the way this system operates, we cannot work on the assumption that movements of this kind can be resisted in perpetuity. It is the case that at some stage of the recovery cycle we do have to anticipate some rise in interest rates. But there is no ground for anticipating such a rise in the near term when the fundamentals remain as solid as they are. If the opposition had any responsibility at all in this respect, it would be trying to get some sanity and balance back into the bond market, not talking up the irrationality that is conspicuously there at the moment.

  There are no fundamental reasons in the Australian market. There is a bit of volatility that is generated by the situation in the United States and overseas. But, if we look at the fundamentals of the Australian market—the underlying inflation rate and the reasonable expectations this economy has for the future—there is simply no foundation for the behaviour of the markets in this respect at the moment. For the opposition to talk up the degree of irrationality that is prevailing at the moment is to perform no service at all to home owners, home buyers or anyone else.