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Australian dollar falls to lowest point since 1988

PETER THOMPSON: Inflation may be at a record low following the release of the CPI, yesterday, but the Australian dollar is taking little notice. In the past two days, the dollar has fallen almost two cents to below 70 American cents. Against the trade weighted index, our dollar has plummeted 14 per cent since August last year. Well, to discuss that and other issues we're joined by the Treasurer, John Dawkins. He's talking now from our Adelaide studio to Maxine McKew.

MAXINE McKEW: Mr Dawkins, you must be worried about the slide in the dollar, down to 69 cents; it's lowest level since 1988.

JOHN DAWKINS: Well, the introduction used some rather colourful hyperbole. There has been a fall against the American dollar. The fall against other currencies hasn't been nearly as great; in other words, this recent move has been at least in part due to a strengthening of the Australian dollar. Now, the fact is that the....

MAXINE McKEW: A strengthening?

JOHN DAWKINS: Sorry, a strengthening of the American dollar. There is a strengthening of the American dollar. Now, the point is that there has been some volatility on the market and, of course, there are people who benefit from that volatility. Things seem to have settled down overnight, and I hope that settling down will continue.

MAXINE McKEW: But surely we're not just talking here about a temporary blip. The dollar has been devalued by 14 per cent in trade weighted terms, since the August Budget of 1991.

JOHN DAWKINS: That's true, Maxine, and of course there have been some competitive advantages flow from that. The important thing for us is to ensure that we maintain those advantages by ensuring that the inflationary effects, the potential inflationary effects of that do not flow into the system. And that's why our wages policy is so important here, because we actually have within our wages policy and within our agreement with the ACTU a commitment to ensure that wages policy is conducted in a way which ensures that our inflation rate remains low and, therefore, we maintain our competitive edge.

MAXINE McKEW: But isn't the advantage only marginal? I mean, isn't there only one conclusion here, that the growth messages of the previous two Budgets and the One Nation statement are not credible as far as the markets are concerned? If the markets thought this was sustainable, surely they'd be appreciating our dollar.

JOHN DAWKINS: Maxine, you can join all of those other people who speculate about what the reasons are behind this volatility. We've seen all kinds of after-the-event justifications for this. There has been a lot of volatility internationally and it is certainly the case that what's been happening in Victoria over the last few days has contributed to the confusion in the market. There have been some, obviously, who have confused Victoria with Australia, and we need to ensure that that confusion is sorted out.

MAXINE McKEW: But Victoria is a big part of the debt problem, adding up to, in total, $150 billion in all - one of the biggest in the OECD.

JOHN DAWKINS: And that's why we will be insisting to the incoming government in Victoria, in exactly the same way as we insisted to the last Victorian Government, that there needs to be a long-term strategy for dealing with this question. And frankly, what was revealed last night by the Victorians, whilst it might be a start, certainly it does not go far enough in terms of correcting the problems in Victoria.

MAXINE McKEW: Treasurer, aren't we running, though, a contradictory policy with the rest of the world? The major economies are contracting at a time when we are wanting to push ahead, and the markets are saying 'That's not on'.

JOHN DAWKINS: I don't think the markets are saying that at all. We are growing. We are likely to grow at about the average rate of growth of our trading partners. I mean, you're falling into the same trap as so many other people, of thinking that we are still locked into the economies of North America and Europe. We are now much more a part of the Asian region where many of the economies are growing quite fast, 4 and 5 and 6 per cent. And what we are intending to do is to grow at the average rate of our trading partners, at about 3 per cent.

MAXINE McKEW: But the rest of Asia is driven by Japan, and Japan's economy is in neutral.

JOHN DAWKINS: No, it's not in neutral, it's still growing.

MAXINE McKEW: Not very much.

JOHN DAWKINS: It's still growing and, you know, you don't want to underestimate the resilience of the Japanese economy and its ability to bounce back. And, you know, people forget that the ASEAN countries are now a more important trading group for us than the United States.

MAXINE McKEW: Treasurer, what will halt the slide of the dollar, then?

JOHN DAWKINS: Well, Maxine, I'm not going to go into a discussion about particular levels of the dollar, and I'm certainly not going to get into a daily commentary on these matters. I've made my remarks clear and that's all I have to say.

MAXINE McKEW: Treasurer, on another matter, despite a lengthy press conference on the subject yesterday, you're still under pressure from the Opposition to give a much fuller explanation of what you knew about Victoria's debt situation, in particular about their breach of Loan Council borrowing limits.

JOHN DAWKINS: Well, there is an absurd proposition coming from the Opposition that we should somehow get involved in controlling the State budgets, and this is entirely in contradiction with what they, themselves, say in their Fightback document. They say they want a federal system which distributes powers in a way which encourages participation and acts as a barrier against centralist, remote and authoritarian control. And yet, if I was to take their advice on what should have happened in relation to Victoria, I would have become both the auditor and the financial controller of the State of Victoria. Now that just isn't the way in which the Australian federation has worked, or, indeed, can work under the legal powers. And I defy anyone to say what else I should have done in order to draw this matter to Victoria's attention and to impose pressure on them to do something about the budget.

There were eight letters that went to Victoria during the course of the year when we were trying to extract information from them, information which they resisted giving to us, but we wanted that information to try and clarify the position as far as we were concerned. But what we now know is that the information that they were providing to us - reluctantly given in any event - was not always the full story.

MAXINE McKEW: Treasurer, did you mislead Parliament by understating the level of Victorian borrowings in the Budget papers?

JOHN DAWKINS: Absolutely not. The way in which this works - and it's perfectly clear in the Loan Council guidelines - is that the definition of borrowings is a matter for the States to determine in the first instance, and the advice that they provided to the Commonwealth, as late as 24 July, maintained that these additional borrowings were of a temporary character and, therefore, not subject to the global borrowing requirements. I replied that I didn't accept that proposition. I wanted more information about the nature of those borrowings. I should make the point, of course, that these weren't additional borrowings. This was a matter of converting short-term borrowings into medium-term borrowings. And what the Victorians were maintaining, wrongly as it turns out, is that these were not subject to the global borrowing requirements. But it wasn't really until the Nicholls report came out, a report which we encouraged the Victorians to undertake, the publication of which we insisted upon, it wasn't until that report came out that the full picture was clear to us and, might I say, was clear to the Victorian Government.

MAXINE McKEW: Mr Dawkins, Dr Hewson used a potentially fatal line, yesterday, for the Government. He said you can't trust Labor Governments with money.

JOHN DAWKINS: Oh, here we are, the Government that has produced the lowest inflation rate in Australia for 30 years....

MAXINE McKEW: And the highest foreign debt.

JOHN DAWKINS: Oh no, but this foreign debt isn't public debt, and here we have, on the other side, a government which is about trying to increase the inflation rate and cut wages. Don't forget that what the essential program of the Liberal Party is, is to increase inflation and then, in order to control that, to put up interest rates and stifle the economy and send it back into recession. Frankly, you can't trust the Liberals to run the economy. You couldn't before and you can't now.

MAXINE McKEW: Just a final point, Mr Dawkins, on the question of the abolition of leave loading for Victorian State public servants. Isn't that likely to strike a chord in some parts of the country where a lot of people would say 'Why pay workers more to go on holidays'?

JOHN DAWKINS: Well, look, let me just take up the Victorian package generally, and I will demonstrate in my relationship with the Victorian Government just how bi-partisan or political neutral we will be in this area. We are insisting that the Victorian Government should embrace a medium-term strategy for dealing with its debt problem. Now, some of the measures which they have undertaken yesterday, are obviously a step in the right direction. But I can't commend the Victorian Government on being terribly clever about the way they have gone about their task: putting taxes up; sacking people; pay cuts; and, believe it or not, wanting to increase their debt. This has not been a very imaginative exercise and we'll be looking forward to a much better effort in the future, and I don't believe that it should take them four or five months to come up with a medium-term strategy for dealing with their debt. And this question....

MAXINE McKEW: Well, hang on, they're tackling the problem. The previous government didn't.

JOHN DAWKINS: Yes, but it shouldn't take them four or five months to come up with a medium-term strategy for dealing with this debt problem because, don't forget, at the same time as they've brought out this package, they're actually going to approach the Loan Council to increase their debt by a further $600 million; and we need to see that in the context of a medium-term strategy. And frankly, the leave loading is really almost irrelevant to that particular issue.

MAXINE McKEW: All right. Mr Dawkins, thank you very much for joining us this morning.