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Keating should be sacked

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Peter Reith



The Prime Minister should start the New Year by sacking the Treasurer and thereby pave the way for a major shift in economic policy. The move would have wide support in the community as well as in Labor's Caucus amongst those pushing for a reshuffle.

Mr Keating should be forced to resign for the major role he has played as Treasurer in deliberately engineering a recession and causing great hardship to hundreds of thousands of Australians. Furthermore, his arrogant refusal to admit the failure of his economic policy is now a major barrier preventing the

implementation of the reforms Australia urgently needs.

It is on the public record that the Treasurer was advised of the consequences of his high interest rate policy and that he

understood and fully accepted those consequences.

In mid-1990, the retiring Secretary of the Department of

Industry, Technology and Commerce, Dr David Charles, gave us a glimpse of the advice he had been giving when he said the

Government's macro-economic policy settings were "a fundamental medium-to-longterm problem" and "if it (Treasury) keeps on driving macro-policy as successfully as it has, there won't be an industry, fundamentally".

Only this week in the Melbourne "Age" (1.1.91), ex-Treasury official David Morgan confirmed Treasury's view:

"Mr Morgan believes that Australia is in for a further shakeout in the financial services section, a shakeout that he says he predicted when he was in Treasury involved in the move towards deregulation of the financial sector" (my emphasis).

Of course, the fact that Mr Keating was warned is not surprising. The Opposition, the Reserve Bank, leading economic commentators and others are all on the public record pointing to the

consequences of high interest rates and urging a different mix and stance of policy.

But the Treasurer rejected those calls. Eighteen months ago, Paul Keating publicly outlined the dire consequences of his interest rate policy, but rather than acknowledging his folly, he arrogantly said that he was entitled to a Congressional Medal or Legion d'Honneur for his brilliant economic management.

His remarks also reveal his culpability for not ensuring adequate prudential supervision of all financial institutions,

particularly those most affected by the collapse of the property market.



His attitude to corporate crashes shows not just his callous indifference to the ordinary Australian who is suffering the consequences but, more significantly, reveals that he sees their plight as evidence of the 'success' of his policies.

Following a long interview with the Business Review Weekly (14th July 1989) it was reported that:

'Keating makes it clear that his policy settings are

designed to lessen the attraction of property investment in Australia. If investment goes into property "its not going into the place that serves the economy best", he says. He makes it clear that interest-rate-sensitive

areas that do not make a positive contribution to the

bottom line of Australia's balance of payments - such as investor housing, residential accommodation and local demand for consumer durables - will be hard hit.

'On the question of private debt, Keating says: "If a bank which has been tripping over itself in the debt

business, lending money, finds all of a sudden that one of the corporations it lent to cannot cut the mustard, it takes a punch on the nose - it loses shareholder funds.

Most of Australia's debt is held by banks and other

financial institutions against the assets and earnings of Australian companies, enterprises and businesses. If they fail, they fail".'

Moreover, Mr Keating's pronouncements were foreshadowed by his Finance Minister, Senator Walsh in November 1988. Six months after the Government's high interest rate policy began, Senator Walsh noted that: "I have no doubt that they (house prices) will fall again, at least in real terms and probably in nominal


There is no doubt that the Hawke/Keating Government knowingly adopted policy settings that engineered a "boom" in demand when they eased monetary policy too much in 1987/88. Then, through their destructive high interest rate policies they engineered the

"bust" which has brought the asset price falls, and the obvious consequences, which we are seeing today.

The only reason we had to have this recession was because of the Government's and Mr Keating's failure to adopt and implement an alternative economic strategy. That strategy would include industrial relations reform, tax reform, lowering protection, an effective anti-inflation package, tighter fiscal policy and micro-economic reforms.

Mr Keating is hoist on his own petard. He has failed the test of adjustment he himself set in his 'banana republic' comments in May 1986.



He then said:

" ... if we don't make it this time, we never will make it. If this Government cannot get the adjustment, get manufacturing going again and keep moderate wage outcomes and a sensible economic policy, then Australia is basically

done for. We will just end up being a third-rate


Mr Keating went on to say:

"The prognosis is, the only way you can deal with the

massive current account imbalance, is to close the economy down. You cut all growth to zero, you stop all the

imports growing and unemployment starts rising again, and profits fall apart, and we go being the kind of economy we were in 1982 ... or worse."

That sounds pretty much like the economic policy Mr Keating has given us in recent years. However, the Treasurer had more to say:

"If in the final analysis Australia is so undisciplined, so disinterested in its salvation and its economic well being, fall back solution is inevitable because you can't fund $12 billion a year in perpetuity every year and then the

interest on the year before that, and the interest on the year before that ... ."

Note the current account deficit has now climbed from around $12 billion to around $18 billion. But Mr Keating went straight on:

" ... the only thing to do is to slow the growth down to a

canter. Once you slow down the growth under 3 per cent, unemployment starts again.

" ... Then, you have gone. You are a banana republic."

As is now apparent, this course of action (first officially revealed by Peter Walsh in April 1990 when he admitted the

Government had resorted to the "traditional Australian remedy") has been followed precisely as predicted by the Treasurer. According to the Treasurer, a policy induced recession - "the fall back solution" - is an inevitable consequence of policy

failure and thus a damning indictment of Labor's failures to provide the leadership and the necessary economic adjustment to preserve Australia's economic well-being.

For these failures and the consequent recession 'we had to have' Paul Keating should have resigned and for which he should now be sacked.

6 January 1991 For further information (059) 777 212