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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. SHADOW M IN ISTER F O R FIN ANCE M E M B E R FOR W ENTW O RTH

No. 19/89

PRESS RELEASE

c o . . ; ; . : o : ;v v e a :j . \ PARLIAMENTARY LIBRARY M ICAH

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27 February, 1989

MAJOR ECONOMIC STATEMENT ESSENTIAL

The olear message from Paul Keating's interview with Michelle Grattan published in today's "Age" is that there is no clear message.

Obviously, in these troubled times, the Treasurer has decided to quickly lift his profile and try to talk his way out of it. An interview in the press media this morning, a debate with "selected critics" - minus one - on TV this evening.

But while it is refreshing to see the Treasurer almost admit that he might have made a mistake, and while we can welcome some of his comments (although sometimes confused) on particular issues that have been raised by the Opposition or media commentators in

recent days, the fact remains that he should make a major economic statement which clearly sets out how he now sees the economic scene, where he thinks it is going and what sort of policy response he thinks is appropriate.

The reason he doesn't, of course, is that he and the Prime . Minister are in an election mode and are running a political, rather than a realistic economic, strategy.

Their political strategy has been built around personal tax cuts, and has been added to with promises of increases in wages and living standards and some increases in Government expenditure. The whole thing was meant to be held together by the use of monetary policy which was to take account of any adverse and

discomforting developments that might occur before the election.

However, it is clear that this strategy has come unstuck, for a number of reasons:

. The official forecasters misread the size and rapidity of the improvement in the terms of trade, as well as its impact on economic activity (just, in fact, as they did with the previous deterioration in the terms of trade);

they have therefore generally lagged behind what has been happening;

. Although having chosen to rely on monetary policy, the Treasurer failed to use it quickly and decisively, preferring to dribble official interest rates upwards and, where possible, attempting to disguise those

"dribbles" in tax payment periods, and so on; and,

. Most recently, the business and financial markets in particular have lost confidence in the Government's economic management; specifically they are now quite concerned about the Government's lack of realism, and they are concerned about the lack of commitment from both the Treasurer and the Prime Minister to genuinely deal with our economic problems.

Businesses and the markets are, therefore, very concerned about what the government is really trying to achieve. For example, although the Government has acknowledged that inflation and the balance of payments are "off track", they show very little real

sense of urgency about them.

Moreover, businesses recognise that the Government is now "obliged" to deliver tax cuts, that they are being forced to deliver increases in Government expenditure and to "institutionalise" a wages break out.

This has left the business community worried that the Government is, in fact, more concerned about unemployment than pulling down inflation and turning our balance of payments around. These fears have been compounded by the Government's tendency to

"rationalise" adverse economic developments rather than acknowledge their seriousness and deal with them, and in . particular, their unwillingness to move clearly and decisively on monetary policy, their chosen instrument.

This business and market concern has most recently manifested itself in terms of a shift in market sentiment against the $A.

The only thing that will now reverse this business sentiment is for the Government to make a major economic statement which clearly sets out its assessment of our current economic circumstances, provides a new set of forecasts for 1989 and

beyond and details an appropriate economic, rather than a political, response.

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