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Treasury official optimistic about economic recovery but cautious on unemployment

ELLEN FANNING: We begin this morning with some rare public words from Australia's highest-ranking Treasury bureaucrat. And the head of the nation's Treasury says the Government's aim of reducing unemployment to 5 per cent by the end of the decade will be difficult to do. Ted Evans last night declared that Australia would never again achieve the employment levels of the 1960s. But, in a speech to the Sydney Institute, the Secretary of the Treasury was optimistic about the general economic outlook. He said the Government's budget forecasts are on track and hinted that the deficit reduction program might be accelerated next year.

Mr Evans' comments come against a background of renewed nervousness on bond markets where fears of inflation in the United States have sent long-term interest rates here to their highest level in two years and sent the share market into a decline. Steven Crittendon reports on last night's optimistic speech by the Treasury head.

STEVE CRITTENDON: Ted Evans began by reassuring his packed audience that the Government's forecasts contained in the budget last May were still on target and that the picture is still one of strong growth linked with low inflation. In fact, he said there was less

uncertainty about the economy's short term outlook at present than there had been for some time.

EXTRACT:

TED EVANS: And the forecast also called for a substantial lift in private investment this year, about 14.5 per cent. And it was that element, that very strong investment forecast, that was greeted at the time with a good deal of scepticism. Now, the latest capital expenditure expectations data released just in the last two weeks show more clearly now that there really is a very high probability of that investment forecast being reached. Indeed, there's some prospect that it may be bettered.

STEVE CRITTENDON: The nation's senior economic bureaucrat may have been blessed with a soothing voice, but he had to admit there were two blemishes affecting the current economic picture. The first is continuing high unemployment. Mr Evans said we had to forget the low unemployment rates of the 1960s and that we were going to have to get used to unemployment rates of 5 or 6 per cent.

EXTRACT:

TED EVANS: That's not an easy thing to say and it's certainly not a clear judgment that it is inevitable. But there is no country at our stage of development, with our history, that manages with those levels of unemployment any more. I doubt that governments will or should stop attempting to get there, but it will be extraordinarily difficult and I think we could make some mistakes if we thought we were going to do it from where we currently are.

The present Commonwealth Government has set itself a goal less ambitious but nonetheless very ambitious of ending this decade with unemployment around 5 per cent. That will, in my judgment, be extraordinarily difficult to do.

STEVE CRITTENDON: The other blemish is the drought.

EXTRACT:

TED EVANS: I would not like to be recorded as waving aside the drought. I think I said the drought can be quite devastating locally and it will have some aggregate effects for Australia. But it's quite clear it doesn't have the effects that it used to have. The agricultural sector in Australia now accounts for 5 or 6 per cent of GDP. It's only a few decades ago that it was 20 per cent, a bit longer than that but not all that much longer.

So it clearly has changed. It will have less effects. Nonetheless, they're serious. When the serious droughts come along, as they will and as they have just done, no doubt in my mind they will be met with additional assistance from the Government.

STEVE CRITTENDON: ABC television's Max Walsh said he'd been talking about the drought to Woolworths who've been warned that higher bread prices are just around the corner, and he wanted to know whether six months of inflation at 3 per cent, rather than the current forecast of 2 per cent, would put pressure on wages. Mr Evans said we should acknowledge that farmers need the higher prices and absorb the forecast higher food prices as a form of income redistribution.

EXTRACT:

TED EVANS: It ought to be an acceptance by the rest of the population that the farming sector needs those prices to sustain a farming sector at all. And although the Government will be helping to some extent, the biggest part of the reaction ought to be through those prices being accepted and not being reflected in, for example, flow on price increases, in particular wage increases.

STEVE CRITTENDON: Australia is already experiencing its longest cycle of economic recovery since the war and Ted Evans says the job now is to prolong that recovery for as long as possible. But Mr Evans did forecast that we'll see a tightening of monetary and fiscal policy as the recovery proceeds.

EXTRACT:

TED EVANS: The tightening of monetary policy should be taken not as a sign that fears are held about inflation but rather that insurance is being taken against its early emergence. Fiscal policy must be conducted in a similar vein and in next year's Budget, preparations for which will commence before too long, attention will need to be given to the adequacies of the fiscal consolidation program which is currently in train.

ELLEN FANNING: Ted Evans, the Secretary of the Treasury, speaking at the Sydney Institute last night.