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Who said $2 billion pump priming is responsible?



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P e PU TYT e ADER of the OPPOSITION SHADOW TREASURER

DEPUTY LEADER of the OPPOSITION PRESS RELEASE SHADOW TREASURER

WHO SAID $2 BILLION PUMP PRIMING IS RESPONSIBLE?

Reports in "The Australian" newspaper today tell us that the previously "low-key" Treasurer Dawkins has taken the initiative to reduce the level of pump priming in the February 26 Mini

Budget from $3 billion to $2 billion - as if this is some sort of responsible position.

This is typical ALP government style attempt at media massaging, which has little relation to good economic policy making.

$2 billion unfunded pump priming would have similarly serious consequences for the Australian economy as the previously canvassed $3 billion. It would lead to inevitably higher

interest rates and inflation rates.

To repeat, pump priming means higher interest rates in the future.

In the last few weeks the Coalition has illustrated the effects of various policy alternatives that may be included in the Mini Budget. Based on today's report, we have run a possible $2

billion unfunded increase in government spending, and what we believe in a highly likely fall in the Australian dollar to the US70 cents (because of lack of confidence on the part of foreign investors in the government's February Mini Budget), through the Access Economics Murphy Model of the Australian Economy. Indeed

the $4 billion in Reserve Bank exchange rate intervention in January revealed in "The Sydney Morning Herald" today raises the question of whether our assumption on the dollar is in fact

conservative.

The Murphy model predicts that the inflation rate would rise to 6.85 percent in 1992/93 and 6.07 percent in 1993/94. In addition it suggests that the unemployment rate will fall only temporarily over the next two years to be as high as 10.05 percent in

1992/93. Finally, foreign debt is predicted to rise to $166.8 billion in 1993/94.

What is needed in Australia is the adoption of the full Fightback strategy. That involves adopting all the key elements, such as industrial relations reforms, waterfront, shipping and other transport reforms, and the whole raft of micro reforms we propose to implement to increase Australia's competitiveness, reduce the growth in foreign debt and lower interest rates.

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19 February 1992

Contact: David Turnbull (06) 277 4277

COMMONWEALTH PARLIAMENTARY LIBRARY MICAH

Dll/92