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Treasury admit that their fightback! analysis flawed

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Peter Reith



Today in Senate Estim ates Committee B, Treasury Deputy Secretary Mr Jo h n Fraser admitted that a key assum ption used in th e Treasury distributional analysis of the Fightback! package w as unrealistic.

Mr Fraser admitted under questioning of the Senate Committee that the key Treasury inflation assum ptions about substantially falling real w ages behind their bracket creep analysis w as not at all likely.

The transcript shows:

Senator Short: My first question was, does an inflation rate of 6 to 7 per cent given our

w ages growth estimate in Fightback! imply a reduction in real w ages of 3.5 per cent? Answered yes.

Mr Fraser: Yes.

Senator Short: Agree with that. Do you consider that that, I m ean would you consider in the Australian context a real w age reduction of 3.5 per cent a year to be realistic?

Mr Fraser: No, well I m ean at the moment.

As often pointed out by th e Coalition, it is ludicrous for the Treasury to have u sed an inflation figure of about 7 per cent with a 3.5 per cent w ages growth figure when analysing Fightback!

To do so implies a ridiculous 3.5 per cent per annum real w ages fall.

These were the assum ptions used by the specially created Microeconomic Modelling Unit - ie the GST Scare Campaign Unit se t up in Treasury by the Government - to analyse Fightback!

However in complete contradiction, Deputy Secretary Fraser, who is in charge of th e Economic Division of Treasury - and w as not involved in the GST Scare Cam paign Unit's detailed work - admitted that such an outcom e w as not at all likely.

Therefore the second m ost senior Treasury Officer disagrees with the key assum ption of this analysis - hence the claims that 70 per cent of w age and salary earning households would be w orse off under Fightback! by the Prime Minister and the Treasurer are wrong. Dam ned by Treasury itself.

And it was this crucial assum ption that led to much of the faulty analysis of the bracket creep implications of Fightback! contained in th e Treasury analysis.

As I pointed out in my p ress release dated 15 March 1992, without the crutch of the bracket creep assum ptions Treasury's analysis show s that nothing like 70 per cent of Australian w age and salary earning households are w orse off under Fightback! - a s Prime Minister Keating h a s claimed.

Indeed what the Treasury's own analysis shows is that without the unrealistic bracket creep assum ption only 2 of 140 representative income categories examined would lose from the Fightback! package - and even that is b a sed on the flawed assum ption of selectively imputing som e of the

expenditure cuts detailed in Fightback!

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3 April 1992 I , v . . . . . . . . !

Contact: David Turnbull (06) 277 4277 | PARI iM '& H i A i lY U SR A kY j D53/92