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Election 2004: Coalition and ALP discuss economic management.

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It may not have been checked against the broadcast or in any other way. Freedom from error, omissions or misunderstandings cannot be guaranteed.


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Friday 24 September 2004

Election 2004: Coalition and ALP discuss economic management


TONY EASTLEY: While he's admitted he can't guarantee interest rates won't rise under his leadership, the Prime Minister John Howard has once again raised the spectre of high interest rates under a Labor Government. Labor has responded by asserting it will cut debt and keep the budget in surplus. 


But some economists worry that as both parties compete for the high ground on fiscal responsibility, they're endorsing bad economics and bad policy. 


Finance Correspondent Stephen Long prepared this report. 


MARK LATHAM: So our interest rate guarantee, our low interest rate guarantee is based on the following rock solid commitments - budget surpluses for every year of the next Parliament and reducing net debt. 


JOHN HOWARD: The policies of Labor are policies that send the budget into deficit. They can promise that they would not send the budget into deficit, but when they were last in government they did. 


STEPHEN LONG: "Deficit" is a dirty word in this campaign, with Labor and Liberal each seeking to assert their fiscal rectitude. 


And Mark Latham's taken to this contest of economic piety with a fervour, seeming to imply that Labor would keep the budget in balance in the coming term, even if there's a recession. 


That might be good politics, but on the mainstream view, it's bad economics. 


JOHN EDWARDS: I think we've learned over the last 50 years that it's not a bad idea if the economy is very weak, that the budget should be allowed to go into deficit. This is part of economic stabilisation, supporting demand at a time when private enterprise for example, is quite weak. 


STEPHEN LONG: That's John Edwards, Chief Economist for the global banking group HSBC, and a former economic advisor to Paul Keating. His old boss once accused Australia of what he termed "deficit fetishism" but critics say the current fetish for surpluses has reached the other extreme. 


Professor Julian Disney of the University of New South Wales. 


JULIAN DISNEY: It's bumper sticker economics frankly what we've been following now for quite sometime. It's really more a primitive ideology and primitive politics than it is good economic management.  


STEPHEN LONG: The credit ratings agencies usually applaud fiscal rectitude, but even they think the enthusiasm for surpluses may be going too far. 


Brendan Flynn of Standard & Poors. 


BRENDAN FLYNN: You don't necessarily have to have surpluses all the time. What we've seen some of the states commit to is budget balances, on average over the course of the cycle which means in the times that are good, they save a little bit.  


But when times are bad, it's the time when they can go out and spend a little bit more, they can kick start the economy in that way, and that makes perfect economic sense.  


STEPHEN LONG: Committing to maintain a budget surplus come what may seems to ignore the lessons of the Great Depression. 


And in the event of a downturn, John Edwards says it would be nigh impossible. 


JOHN EDWARDS: In each of the three recessions Australia's had over the last 40 years, within the year or so, the budget's not only gone into deficit, it's gone into deficit in a very big way.  


STEPHEN LONG: Critics also worry that the aversion to government debt is undermining investment in public works with long-term benefits. 


And when it comes to debt, Brendan Flynn of Standard & Poors thinks the politicians could relax a little. 


BRENDAN FLYNN: Taking on debt for long-term infrastructure is a sensible reason to take on debt, actually. You'd be concerned if debt was to fund operating or ongoing spending. But something like infrastructure spending where it is a long life asset, it is quite appropriate.  


STEPHEN LONG: What worries the credit ratings agency more is politicians squandering the surplus on handouts to buy votes. And as in most elections, there's been no deficit of promises. 


TONY EASTLEY: Finance Correspondent Stephen Long reporting.