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With the ACTU in control of monetary policy the only way to getlow inflation is a recession



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M edia R elease

129/92 29 April 1992

WITH THE ACTU IN CONTROL OF MONETARY POLICY THE ONLY WAY TO GET LOW INFLATION IS A RECESSION.

Today's inflation number will be welcomed by all Australians. However, we need to keep inflation low and Labor has shown a total inability to achieve low inflation in any other way than forcing the economy into recession.

Today's CPI figure should not give the impression that Mr Keating has finally got monetary policy right and we can look forward to low inflation and strong growth under Kelty and Keating.

The fact is that the current low inflation was only won at the unacceptable cost of one million unemployed.

Under the Keating-Kelty regime, the Prime Minister gets together with his union mates and determines a wage outcome for the coming year. The Reserve Bank is then left with the task of trying to accommodate this pre-determined nominal wage increase. That's

right: the ACTU in effect decides the level of inflation, not the Reserve Bank.

The problem is that this system locked Australia into a period of high inflation in the 1980s, about twice the OECD average. Since the ACTU generally asked for a wage increase sufficient to cover the previous year's inflation, and the wage increases themselves fed further inflation, there was no way Keating could control inflation without a severe recession.

With one Nation locking in wage rises of four per cent a year, we are in for more of Keating's boom-bust economic poison.

Fightback! offers a clear contrast that will deliver low

inflation without recession. The Reserve Bank will be given the primary task of reducing inflation to the range of 0-2 per cent. Wage rises will then have to take account of this. If unions push for wage rises above 2 per cent without delivering genuine productivity improvements, they, and not the government or

Reserve Bank, will have to bear the responsibility for causing unemployment.

If Mr Keating i s .serious about keeping inflation low without causing another recession, he should

. scrap the accord and deliver the Fightback! reforms, particularly in the labour market; . change the RBA charter to give it the primary task of

keeping inflation in the 0 to 2 per cent range; and . get fiscal policy in order.

FOR FURTHER INFORMATION CONTACT (06) 277 4022

COMMONWEALTH PARLIAMENTARY LIBRARY MICAH