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Treasurer admits inflation forecast for '88/89



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P A R L I A M E N T O F A U S T R A L I A

h o u s e o f r e p r e s e n t a t i v e s

DR JOHN R. HEWSON, M.P. s h a d o w m i n i s t e r f o r f i n a n c e

M E M B E R f o r W EN TW O RTH

COMMONWEALTH p a r l ia m e n t a r y LIBRARY m i c a h

Acting Shadow Treasurer No. 46/89 10 May, 1989

PRESS RELEASE

TREASURER ADMITS INFLATION FORECAST FOR '88/89

The admission by the Treasurer, in answer to my Question Without Notice today, that he had assumed a 6.75% increase in inflation (as measured by the private consumption deflator) for 1988/89, for calculating real household disposable income in the April

Statement, is significant for several reasons:

. It is the first time the Treasurer has given any real indication of the extent to which his inflation forecasts are off track this financial year;

. It is a clear admission that he probably selected the lowest measure of inflation for the purpose of calculating real household disposable income. For example, in the year to December 1988 (the latest period for which we have comparable data), the CPI increased by 7.7%, the Gross Non Farm Product deflator increased by 8.9% and the GDP deflator increased by 9.1%, while the private consumption deflator increased by only 7.1%.

. It suggests that the Budget time earnings growth forecasts will also be wide of the mark this financial year. The Budget time forecast for average earnings growth in 1988/89 was 5.5% (survey basis) and 6.5% (National Accounts basis), yet the data supplied in Table 1 on page 29 of the April

Statement suggest average earnings will grow by 7.0%.

. As a related point, it seems that the Government has also revised upwards its estimate of the likely increase on household disposable income this year - from 3.0-3.5% - because of the higher than expected wages growth.

These forecasts are crucial to assessing the viability of the. so-called wage/tax deal with the ACTU as stated in the April Statement "the Australian Council of Trade Unions has agreed and expects that average earnings in 1989/90 will be held to around

6.5%."

If the Treasurer wants us to believe that his wage/tax deal will hold together he should supply a full set of wage and inflation forecasts to put our minds at rest.

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