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Keating signals further loosening of fiscal policy

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3 March 1991


The Treasurer's interview on today's Sunday program represented another step on the road to his fiscal humiliation when he admitted that this year's budget could possibly slip into deficit and that initiatives in the 12 March statement

would not be funded. The Treasurer is obviously not in control.

Only 8 months ago, the Treasurer was emphasising the central importance of fiscal policy. He used to say that fiscal policy needed to be kept as tight as a drum as part of the strategy to stabilise Australia's foreign debt. He said to the Premiers in June 1990;

"It is entirely important - it is not a matter of some accountant's fixation with numbers - that the public sector remains in surplus. That is our objective."

Today he has a different message. He has loosened fiscal policy and tried to justify the new approach by claiming that fiscal policy has to be seen medium term and "other factors must count with weighting."

Of course, the truth is that the Treasurer has not had a medium term objective for fiscal policy. Labor pump-primed the economy in their first few years and then, as Peter Walsh recently testified, Labor failed in 1989-90 to use fiscal

policy to curb total demand. Instead, high interest rates were used to deliver the traditional Aussie remedy.

Now, in the recession we had to have, in addition to the cyclical fall in the surplus Labor is also loosening fiscal policy structurally to the tune of billions of dollars. Policy was loosened to buy a wages deal and now is about to be used to shore up industry policy. These are discretionary expenditures as are the savings available to be achieved if the Government had the political will to adopt the measures

identified by the Coalition in our Economic Action Plan.

As the Treasurer's surplus disappears and as the States' finances deteriorate, the public sector's call on the nation's savings will intensify. In turn, that will keep interest rates higher than they otherwise need to be.



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Today's appearance by the Treasurer only confirms that the Government has completely lost any sense of direction in economic policy. Australia's debts accumulate whilst the Treasurer abandons his Budget-time assertion that tight fiscal policy was essential to stabilise debt. We can only hope that the 12th March statement will be as Mr Keating said today,

"more than just an industry statement."

Australia urgently needs a complete reappraisal of policy and the urgent introduction of a series of real reforms in industrial relations, tax, shipping, waterfront, and privatisation just to name a few.