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The Treasurer still hallucinates on the balance of payments



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P A R L I A M E N T O F A U S T R A L I A

H O U S E O F R E P R E S E N T A T I V E S

DR JOHN R. HEWSON, M.P. SHADOW MINISTER FOR FINANCE M E M B E R FOR WENTWORTH

No. 57/88

COMMONWEALTH

PARLIAMENTARY LIBRARY MICA'.i

PRESS RELEASE

THE TREASURER STILL HALLUCINATES ON THE BALANCE OF PAYMENTS

The balance of payments deficit for November of $1,545 billion once again highlights the full extent of the Treasurer's hallucinations about the state of our balance of payments and indeed the viability of his Budget strategy.

One can but wonder for how many more months the Treasurer will go on blaming "special factors" for the poor monthly balance of payments number, while trying to argue that "the trends are still in the right direction".

Clearly our balance of payments is structurally weak. And so too is his economic strategy.

The key point in today's release is that our current account still deteriorated even though some of his "special seasonal factors" (particularly the pick up in wool exports) were at work. The trade deficit deteriorated further in both "seasonally adjusted" and in "trend" terms.

The November current account figure brings the total for this financial year to $7,355 billion, or roughly 77 percent of the Treasurer's budget forecast $9.5 billion in about 40 per cent of the time.

The current account deficit in the year to November has jumped to $13.8 billion, well in excess of last year's outcome.

In the first five months of this financial year (July to November), the current account deficit has been running nearly 30 per cent above the level of the first six months of this calendar year (January to June). So even if the "seasonally low" numbers

of the first half of 1988 were to be repeated in 1989, the current account deficit is unlikely to be less than that last financial year? indeed it most probably will be in excess of last year's outcome.

As I have now said on a number of occasions, the Treasurer must come clean. He must offer a realistic assessment of the prospects for the Australian economy. He must rethink and amend his budget strategy.

In this regard, it is beyond comprehension that he can now be acquiescing in Bill Kelty's idea of a wage increase in 1989/90, on top of his promised tax cuts. How can he now take this view when he originally argued that those tax cuts would be

conditional on "no wage increase" next year.

It is also beyond comprehension how he can continue to rule out

further cuts in Government expenditure and claim that there is no case for a May Statement.

It is also beyond comprehension how he can continue to talk about micro reform, yet do nothing about it.

By continuing to rely totally on monetary policy and interest rates, the Treasurer is guaranteeing that interest rates will stay high, indeed will probably have to go quite a lot higher, through the middle of next year. And this will be particularly

so if the recent upward trend in world interest rates in sustained.

Interestingly, the markets have already voted with their feet in response to this unexpectedly high current account number; interest rates have jumped and the dollar has come off.

There is now an urgent need for the Treasurer to rebalance the "mix" of his macro policy, to take some weight off monetary policy and interest rates. This will call for the Treasurer to pursue a much harder line against his mate Bill Kelty and to

"beat" some of his Parliamentary colleagues to accept the need for a May Statement.

However the structural weakness of our balance of payments can only be adequately dealt with by a concerted program of micro economic reform which will include decentralising and deregulating the labour market so that wages move in line with productivity; genuine reform of our tax system; significantly reduced protection; and deregulation of the transportation

infrastructure, particulary the waterfront and so on.

I also reiterate my challenge to the Treasurer to debate me on our current conditions and appropriate policy responses.

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For further information: (062) 77.4510/3125