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July Balance of Payments outcome distrurbing



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Senator Jim Short Deputy Leader of the Opposition in the Senate Shadow Minister for Finance &

Assisting the Leader on Commonwealth/State Relations

JULY BALANCE OF PAYMENTS* OUTCOME DISTURBING SMF81/92

The 13% increase in the Balance of Payments deficit in July, in $1.43 billion, is disturbing.

It is the fifth successive monthly rise in the trend estimate for the deficit.

Our trade balance is now back in the red, with imports exceeding exports by $103 million.

Despite the continuing recessed state of the economy, imports rose in July to the highest monthly level ever recorded.

Although not too much emphasis should bo placed on one month's figures, the result already raises questions about the Government's forecast in the recent Budget of a $15 billion current account deficit in 1992-93. This figure has looked optimistic since Budget night, given the uncertain prospects for exports over the year ahead, and the progressive increase in imports

over the past year despite the deeply recessed economic conditions in Australia.

The Government has failed abjectly to put in place the necessary structural changes to the Australian economy to enable economic growth to resume without immediately running into yet another balance of payments crisis, There is every likelihood of a further major blowout in the current account deficit as and when economic recovery commences unless immediate steps

are taken to increase our international competitiveness by lowering our internal cost structures and improving our rate of productivity growth.

It is imperative that Australia embark on the fundamental structural reforms to its industrial relations, taxation, and infrastructure industries that are contained in the Coalition's Pightback! package.

Today's disturbing balance of payments result demonstrates even more conclusively - if such were required - the high risks inherent in the Government's profligate, spend-now-pay-later Bankcard Budget.

The huge Budget deficit, and the massive deterioration in the Government's fiscal position over the past three years, makes it inevitable that there will be continuing downward pressure on the $A, and upward pressure on interest rates. Both of those will make much more difficult the task of keeping inflation at a sustainable low level as and when economic recovery commences. They will also endanger any such recovery at an early stage.

Melbourne, 31 August 1992

For further information, contact Senator Short on 03/387 4177

COMMONWEALTH parliamentary library MIC AH '

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Senator Jim Short

SMF80/92

Was Willis Serious?

Finance Minister Ralph Willis' remarks on the ABCs "AM" Program this morning were a-clear indication that the Government has completely lost its way on economic policy.

Either that, or it was part of a shrewd strategy by Mr Willis, aimed at winning back the Treasurership that he believes he unfairly lost to Mr Dawkins in the backwash of Paul Keating's political assassination of Bob Hawke last December.

The 1992 Budget - of which Mr Willis was a key architect - was Dead on Arrival. For Mr Willis now to bleat that the community should be paying more attention to the Budget's proposals for 1992/93, and less attention to the Government's secret tax increase agenda for a little further down the track, is ludicrous.

The fact is that the Government has produced a cynical vote buying Budget that is "spend now pay later." .

Does Mr Willis seriously believe that all Australians should not be deeply concerned about the "pay later" part of that equation?

We are facing a huge cumulative Federal fiscal deficit over the first half of the 1990's. It could well total $50 billion.

In the short term that deficit will be financed by borrowings. All that does is decimate our national savings, saddle taxpayers with a huge interest bill, push up interest rates, provoke a renewal of inflation and inflationary expectations, and more than likely provoke a balance of payments and exchange rate crisis.

In the medium term that huge deficit will inevitably mean equally huge tax hikes. And Mr Willis has the gall to tell Australians they should stop thinking about these matters and first concentrate on the here and now! What arrant nonsense!

However, it is fortunate for Mr Willis and his Government that the electorate has let the 1992/93 Budget details sink without trace. Close examination of those details shows:

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• A totally irresponsible and inappropriate blowout in the deficit due to a failure by the Government to hold down expenditure growth. As Finance Minister Mr Willis must bear the prime responsibility for this fiscal vandalism.

• A series of extremely rubbery figures.

• An increase in a wide range of taxes and charges - a small foretaste of things to come.

• A debt financing program that will push up interest rates during 1992/93 if there is any significant increase in private sector capital requirements.

No wondet-the financial and foreign exchange markets have reacted unfavourably since the Budget, with the $A falling sharply and interest rates, at both the short and long ends, moving up.

It is a mark of the Government's self-delusion that Mr Willis today placed the blame for this entirely on uncertainty in overseas markets. Whilst this is certainly an element, it is Alice-in-Wonderland stuff for Mr Willis to pretend that the 1992 Budget is not a major contributor.

Canberra 27 August 1992

Senator Short will be available in Canberra for further comment or interview until 4.00pm today.

Contact (06) 277 3119