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Major parties emphasise economic credibility -

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Broadcast: 02/09/2004

Major parties emphasise economic credibility

Reporter: Tim Lester

KERRY O'BRIEN: It's no accident that interest rates are a highly sensitive issue in this campaign.

An overheated property market and a growing mountain of heavy mortgages has left us seriously
exposed in the event of rate rises.

And you don't have to read the financial pages to know that the next rate rise is expected very
soon after the election, no matter who wins.

The Prime Minister launched his election campaign with the claim that Labor government would
mismanage the economy and drive rates dangerously higher.

And you saw Mark Latham's response today, with that very large pledge to keep them low.

So, to help you through the claim and counterclaim, here's business and economics editor Tim

TIM LESTER: South Melbourne market - one among thousands of places where Australians buy and sell
the basics of life.

WOMAN 1: Your spending just seems to go up anyway.

TIM LESTER: Here the hip pocket matters, so the economy matters, and every transaction is an ad for
electing a party that can manage it.

WOMAN 2: I think I'd be better off under the Labor Party.

MAN: Unless Labor comes up with something big, I'll stay with Liberal.

TIM LESTER: So does either party have the record to call itself the better economic manager?

WOMAN 3: You're joking.

I'm a pensioner, so neither of them are going to leave me with anything.

TIM LESTER: The Howard Government has long claimed the mantle and is now using it to prod the
rawest of our economic nerves.

JOHN HOWARD, PRIME MINISTER: Interest rates always go up under Labor Governments.

MARK LATHAM, OPPOSITION LEADER: Our pledge is downward pressure on interest rates.

TIM LESTER: Here's why rates are the frontline economic issue.

ALAN OSTER, CHIEF ECONOMIST, NAB: The household sector is about three times more geared, and by the
time cash rates get anywhere near 7 the unemployment rate will go through the roof and you'll have
a major crash.

TIM LESTER: So which party has got the form to control interest rates?

Economic consultants Econtech have prepared several snapshots of the last quarter of a century for
the 7.30 Report.

One of them tracks short-term interest rates, largely rising under the Fraser Government, moving
through two near 17 per cent peaks in the Hawke/Keating years and then falling under Labor and in
recent years tending even lower under the Coalition.

IAN HARPER, MELBOURNE BUSINESS SCHOOL: It's true that interest rates on average under the Coalition
party back through to '96 were lower than under the Labor Government.

TIM LESTER: Melbourne Business School's Ian Harper sees low interest rates are an important feather
in the Howard Government's economic cap.

Former Reserve Bank board member Bob Gregory is not convinced.

PROFESSOR BOB GREGORY, AUSTRALIAN NATIONAL UNIVERSITY: The interest rates are primarily determined
by world events, events largely outside of the control of government.

PETER COSTELLO, TREASURER: If I'd of said to you during the Hawke/Keating Government, interest
rates might increase to 7 per cent, you would have said, "I should be so lucky."

SIMON CREAN, SHADOW TREASURER: High interest rates under Labor governments are a thing of the past.

TIM LESTER: For now, the futures market believes Labor.

STEPHEN KOUKOULAS, TD SECURITIES ECONOMIST: The market, which is trading on a minute by minute
basis, according to all the information, be it economic news, political news, whatever, is
currently assessing that interest rates are going to be very stable over the next 12 to 18 months,
regardless of who wins.

That's even with the Labor Party slightly ahead in the public opinion polls.

TIM LESTER: Economist Stephen Koukoulas looks to other numbers to weigh which governments have been
our best managers.

He says Labor governments have done better on GDP and employment growth and the stock market's

STEPHEN KOUKOULAS: During the Hawke/Keating years, the Australian Stock Market outperformed the US
market by a small amount.

During the Howard years, the disappointing performance on share prices has actually been a
significant underperformance versus the stock market in the US, even though the US stock market has
had one of its largest falls.

ALAN OSTER: I would prefer to look at the economy and then ultimately look at the unemployment

TIM LESTER: Unemployment climbed at the close of the Fraser Government, then headed down under
Labor's stewardship until the recession we had to have.

Today, that 10.7 per cent jobless peak still haunts Labor.

PETER COSTELLO: Let me tell you something - the Keating recession of 1990 went close to destroying
this country.

We had 11 per cent unemployment, our Budget was smashed.

TIM LESTER: Econtech have prepared us one other yardstick of economic management.

They've mixed a cocktail of inflation, unemployment and interest rates into what economists call
the misery index.

Under the Fraser-Howard stewardship, those bad numbers headed north.

Under 13 years of Labor they trended down, and they've got better still under Howard/Costello.

IAN HARPER: If you take that, it's clear that economic conditions under the Coalition party - under
Mr Costello and Mr Howard - have actually been better.

TIM LESTER: So that's the answer then? No. The misery index flatters the Howard Government, but if
the PM looks back a bit it gets, well, upsetting.

STEPHEN KOUKOULAS: The worst misery index performer in the last 25 years was Treasurer John Howard.

TIM LESTER: If we judge Labor on those numbers, shouldn't we judge him as well?

PETER COSTELLO: Well, I think you've got two very easy comparisons.

You've got eight-and-a-half years of the Howard/Costello team and you've got eight-and-a-half years
- 13 years of the Labor team.

TIM LESTER: Which neatly ducks the question of John Howard.

PETER COSTELLO: But they're comparable periods.

TIM LESTER: But comparing any numbers over time is fraught with two major problems.

First, who's to say today's numbers are all the work of the present government?

What about the reforms of previous governments and the effects they still have today?

Certainly that's what Labor wants us to focus on.

SIMON CREAN: Only Labor has been the party of reform.

We're the builders.

TIM LESTER: Second, there's all the international influences on our economy.

PROFESSOR BOB GREGORY: It's a bit like choosing your parents.

You need good parents, and you need to be elected in good times.

STEPHEN KOUKOULAS: What happens in the US, what happens in Japan, things like oil prices, are
probably going to be a lot more important for the economy over the next two to three years, rather
than if we get some fiddling around with income tax scales and those sorts of things.

TIM LESTER: So when it comes to the big numbers, does it even matter which party we elect?


Probably not.

That is, I certainly won't be casting my vote on the macro issues.

TIM LESTER: Of course the answer depends on whether you ask an economist or a politician.

SIMON CREAN: There is a huge difference.

ALAN OSTER: They're going to mimic each other pretty closely.

PETER COSTELLO: I'm astounded that any economist could make a prediction as to what will happen
under a Labor government when we haven't seen a tax policy, an economic policy.

TIM LESTER: Hang on, the Treasurer and PM are themselves making predictions about what will happen
under a Labor government - higher interest rates.

Why shouldn't the economists have a crystal ball as well?

Those we spoke to are for the most part flattering about the Howard Government's economic
management, though none is predicting an interest rates disaster under Labor.

IAN HARPER: Frankly when it comes to economic management, Mr Crean and Mr Costello are really
preaching from the same broad scripture.

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