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Treasury economic roundup: summer 1998



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PRESS RELEASE ----------- J

EMBARGO Friday 20 February 1998, 00.01am

TREASURY ECONOMIC_ROUNDUP: SUMMER 1998

The Summer 1998 edition of the Treasury Economic Roundup was released today and includes the articles listed below. The Roundup is available from Government Info shops or through Treasury’s internet home page: http://www.treasury.gov.au. Subscriptions are also available by contacting the Roundup Publications Officer, National Mailing and Marketing Pty. Ltd., on 02 6299 6044.

Economic Overview

The focus of this Overview is on recent and prospective economic conditions in an industry framework. Domestic demand continues to grow strongly and its considerable momentum should lead to continued strong growth in output and employment over the course of 1997-98, particularly

in the more cyclically sensitive industries such as the manufacturing, construction, retail and some service sectors. Slower external demand will progressively affect export volumes over the course of 1998, with some further weakness in commodity prices also likely. This will reduce returns in

industries reliant on exports, and particularly the mining and agricultural sectors and, to a lesser extent, the manufacturing sector. Some service producers will also be affected, although service exports form a relatively small proportion of overall service sector output.

This Overview also reviews international economic conditions and briefly discusses developments in wages, prices and the external current account balance.

The Wholesale Sales Tax: Sixty-Eight Years On

This article briefly discusses the principles that should guide the design of a good tax system and then highlights some features of the current wholesale sales tax that are inconsistent with these principles. The article draws on some historical information to demonstrate that the original motivations for the design of the tax may no longer be relevant.

Interpreting Wage Measures

This article examines available measures of wages and reviews their suitability for assessing wages growth. A difficulty with assessing wages growth in recent years has been the divergence between the various measures. The assessment is that the current range of wage measures is not well suited to measuring wages growth because the measures were constructed for other purposes. The article notes that the introduction of the Wage Cost Index by the Australian Bureau of Statistics will provide measures specifically designed for assessing growth in wages.

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The Business Cycle — Developments in the Economy’s Response to Disturbances

This article examines some of the developments influencing the Australian economy’s response to disturbances such as drought, movements in world commodity prices and changing economic conditions in our trading partners and world financial markets. These developments include changes in macroeconomic policy, the floating of the exchange rate, microeconomic reform and changes in the pattern of business investment.

The assessment is that some of these changes, particularly the current approach to macroeconomic policy and the impact of microeconomic reform, have strengthened the stabilising mechanisms in the economy. This should help make the economy more resilient in the face of economic

disturbances.

Taxation of Financial Arrangements: The Trading Regime

This article explores some of the more controversial aspects of an interrelated set of issues raised in industry submissions on the trading regime proposed in The Taxation o f Financial Arrangements: An Issues Paper. These proposals aim to reduce uncertainty, provide for a more comprehensive and consistent ‘accruals’ treatment of financial arrangements, achieve greater neutrality in the tax

treatment of hedging arrangements, complement the desire of taxpayers to lower compliance and transaction costs and enhance their competitiveness, reduce tax arbitrage opportunities and abuse, and not impede financial arbitrage and financial innovation.

Australia’s Participation In Support Arrangements For East Asian Adjustment Programs

This article outlines the support arrangements for IMF-supported programs in Thailand, Indonesia and Korea and Australia’s participation in them. It also provides details of the programs being implemented by each country.

Australian Net Private Wealth

This article updates previous estimates, and provides preliminary estimates for net private sector wealth as at June 1997. The market value of Australian net private sector wealth grew by 11.8 per cent in the year to June 1997, representing the highest growth rate experienced since 1989. In real terms (ie after allowing for inflation), wealth grew by 10.3 per cent, while per capita real wealth grew by 9.1 per cent. These are also at the highest rates of growth since 1989.

CANBERRA, ACT 20 February 1998

Contact officer: Mr Graham Matthews Economic Conditions Branch Telephone: (02) 6263 3748