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Thursday, 25 August 1994
Page: 374


Senator TIERNEY —My question is directed to the Leader of the Government in the Senate. I refer to the Reserve Bank's warning of the threat of higher interest rates posed by the government's unduly large budget deficit. The RBA board warned that the budget stimulus `. . . has to be wound back to make room for the necessary growth in business investment and to avoid a disproportionate share of adjustment falling on monetary policy'. Is the minister now prepared to accept this advice and tighten fiscal policy? If not, why should this Labor government not be held responsible for the pain inflicted on small business and home owners by even higher interest rates?


Senator GARETH EVANS —I think Senator Tierney will find it most unwise to take at face value what Mr Peter Costello said about these particular matters—I think he is quoting from that press release. When we look at the terms of the RBA annual report, we see that it is perfectly clear that the RBA supports the government's deficit reduction commitment of around 1 per cent of GDP by 1996-97, observing that the achievement of that target will have an important bearing on the level and composition of growth in the years ahead.

  Senator Tierney is no doubt referring to the RBA's comment about `achieving—and hopefully doing better than—this planned reduction in the deficit.' That should not be construed as in any way a criticism of that objective that we have mapped. If senators read the context of the report, they will see that that is the single such phrase in the entire report, amid acres of pages of print—trees full of print—applauding the quality of the government's macro-economic achievement and the bank's confidence that these targets will be met. They will make the difference we are saying they will to the effective performance of the Australian economy.

  Being economists, they are no doubt a bit wistful and they would like a bit more, if possible, off the budget, but they are leaving it to our judgment and they are accepting that the target, if reached, will do the job that we have said it will. What is that job?


Senator Kemp —Read the report.


Senator GARETH EVANS —I have read it, more than you have, Elmer, I bet. As outlined at budget time, the forecast deficit for 1996-97 is now less than one per cent of GDP and the budget is expected to return to surplus soon after. The OECD regards that commitment as realistic. It has noted that it will take us further than most of the countries in the OECD list.

  The RBA's overall assessment of the economy is extremely positive—and so it should be—and it is in accord with the government's. GDP grew by about 10 per cent from mid-1991 to mid-1994, well ahead of the recoveries in most other industrialised countries. Private consumption rose by three per cent in the last financial year, the strongest growth in four years. Not only are the preconditions for investment in place but today's figures on business investment show that it is growing strongly, with capital expenditure increasing by eight per cent in real terms in the June quarter, with this strong investment growth driven by a broadly based 14 per cent increase in expenditure on equipment, with investment in equipment now at its highest level since the September quarter 1990. The conditions are in place and that investment, as we said it would, is now coming to be put in place.

  The labour market firmed appreciably over the last financial year, with private sector vacancies rising to their highest levels since 1989 and 200,000 new jobs being created between September last year and June this year. The current account deficit grew only marginally. The manufacturing sector performed well in 1993-94, with output growing by around 10 per cent and exports by about 18 per cent. Net foreign debt has declined from 41 1/2 per cent as a proportion of GDP in mid-1993 to an estimated 38 1/2 per cent in the middle of this year. There are few signs at all of any actual pick-up in the rate of inflation, with the headline inflation under two per cent now over the last two years and underlying inflation around two per cent for the past three years, with the impetus for price increases from labour costs remaining extremely subdued and good overall productivity performance offsetting earnings growth and contributing to that outcome.

  That is the environment we have in this country; that is the applause throughout the course of its report that the RBA gives this government; and that is what it says about that particular deficit reduction target. I say to those opposite: `Don't beat it up, don't misconstrue it, don't mischaracterise it and don't, whatever you do, listen to what your own deputy leader is saying because he is no more credible every time he opens his mouth on these matters than your leader is.'


Senator TIERNEY —Mr President, I ask a supplementary question. One figure that the minister conveniently left out was the fact that interest rates are now on the way up. This is as a result of the government's budget deficit being too big. The government has been warned by the Reserve Bank about this, and I ask the minister: was this not also reinforced by the Managing Director of the National Bank, Mr Don Argus, on Monday? How many warnings does this government need before it reduces the budget deficit and takes the pressure off interest rates?


Senator GARETH EVANS —Before Senator Tierney opens his mouth again on interest rates, he should contemplate the fact that official cash rates at the moment are 5.5 per cent, and that is just three-quarters of one per cent above the lowest level they have been for 20 years. He should also contemplate the fact that, in the last year of office of those opposite, when their leader, dollar-each-way Downer, was advising the Fraser government, interest rate levels in Australia for those cash rates reached 17 per cent—17 per cent in the last year in office of those opposite, and they have the indecency to attack us for getting and sustaining interest rate levels at these levels. Senator Tierney should go and reconsider his position. He makes a fool of himself every time he opens his mouth.