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Australian dollar, reserve bank, interest rates, federal budget, Victorian budget



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Leader of the Opposition

13 August 1992 REF: TRANSCR\0522\BQ

DR JOHN HEWSON, MP TRANSCRIPT OF INTERVIEW ON 'AM', ABC RADIO

E & 0 E - PROOF COPY ONLY

SUBJECTS: Australian Dollar, Reserve Bank, interest rates, Federal Budget, Victorian Budget.

Thompson:

Well the Government seems powerless to stop the slide of the dollar. What does the Opposition think ought to be done. We've been joined by the Leader of the Opposition, John Hewson. Good

morning Dr Hewson.

Hewson:

Good morning Peter.

Thompson:

Is the fall of the dollar anything to worry about?

Hewson:

We think it is, we've been warning the government for quite some time that if they didn't address the problems, financial markets would ultimately lose confidence in them and give them a very clear warning. And what we've seen in recent days is a

government that's out of control, it's tried to massage

expectations as Bill Shields has said b ut, of course, they were too smart by half. And now there is a very clear warning to the government about a Budget. I believe if they bring in a Budget next week that's got a deficit of about $13 to $14 billion, it's achieved by asset sales and other fiddles, rather than addressing our problems they run a very high risk of this process

continuing.

Parliament House. Canberra. A.C.T. 2600 Phone 2774022

REF: TRANSCR\0522\BQ 2 .

Thompson:

Well we are going to see asset sales, of course, of Qantas and Australian Airlines and it certainly seems like we are going to have a budget deficit of $13 to $14 billion, so in a way you're sending some punches now about the budget deficit.

Hews on:

Well there is a very clear warning, the Prime Minister has been going around this country doling out money that he doesn't have, giving wage increases that we can't afford and financial markets are sending a very clear warning - you've got to address our problems, you can't buy your way out of our problems with money you don't have.

And this budget is really their last chance, unless they show genuine capacity to turn our fiscal situation around, then this country is in for a very difficult time. We've already had a fall in the currency of about 10 or 12% since September last year, that could add a couple of percentage points to inflation

alone, it would certainly contribute to higher unemployment down the track, it will add to debt and it risks, of course, a further downgrading of our credit standing.

We saw the Victorian Government bring in a pre-election budget which is just undeliverable, it doesn't address the problems, it milks the transport authority for some money to make the numbers to look good. It has implications for the Federal Budget down

the track. Quite frankly, we're living in a fools' paradise. The Government must, without any exaggeration, it simply must I think start again with this budget.

Thompson:

Let's go back to the dollar. What should be done about the

dollar now? Are you happy to see the Reserve Bank intervening in this way?

Hewson:

Well I've been very surprised at the extent to which they have intervened. But in the short term, I guess, they do what they can to try and stabilise the situation. But if the Reserve Bank was doing its job, it should be putting massive pressure on this

government to bring in a responsible budget and not be part and parcel of this process. I couldn't believe yesterday that John Dawkins was out there speaking for the Reserve Bank Governor prior to any board meeting, any consideration of interest rate

reductions, he's out there saying what the Governor believes.

REF: TRANSCR\0522\BQ 3.

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Thompson:

Clearly though he talked to the Reserve Bank Governor before he made those statements.

Hews on:

An independent central bank ought to be out there putting

pressure on this government. The government is out of control. We are risking another acceleration of inflation, another acceleration of debt, another balance of payments crisis and this budget, you know, they're bringing in a very, very soft budget.

$13 to $14 billion achieved as I say, by asset sales and other fiddles and in the past they've accelerate repayments from the Reserve Bank or dividends from the banks, they've milked

superannuation funds. The market will scrutinise this, they'll put all that aside and say, now are these addressing the problems or not? And what you're really seeing is financial markets have finally woken up and said, look, these guys are not addressing

the problems, we're taking a heck of a risk leaving our money in Australian dollars, and until, I think the government

demonstrates the capacity to deal with these problems, the markets will react accordingly.

You can go back to 1986, I remember Senator Walsh describing in some great detail how they had a currency crisis in 1986 while they were formulating the budget and they went back in and redid the numbers and cut expenditure, it's that type of world again. They really have to bring in a responsible budget.

Thompson:

Well you haven't taken exception to the Reserve Bank intervening, is it appropriate for John Dawkins to go on programs like ' The World Today' and talk up the dollar?

Hewson:

Well he's just trying to handle a difficult situation which I think they created. I have no doubt in my mind, as we said some days ago, that they set out to create the expectation that the budget deficit would be quite high and when they bring in a lower number everyone has this element of surprise and relief.

But the fact is that $13 to $14 billion would be grossly

irresponsible in the circumstances I've described.

Thompson:

Thanks for joining us, John Hewson, the Leader of the Opposition.

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