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Treasurer discusses inflation, home loans and privatisation

ELLEN FANNING: Now to our interview with Ralph Willis, and the Treasurer is in New York telling the Americans that Australian officials really are serious about keeping inflation down. The financial markets in Australia have recently forced long-term interest rates higher, partly due to fears that inflation won't be kept in check in the future. But Mr Willis insists the Government will do whatever is necessary to keep it below 3 per cent. Our New York correspondent, Phillip Lasker, asked Mr Willis if there were any signs that authorities should start thinking about increasing interest rates.

RALPH WILLIS: What I'm saying is that to this point of time, there hasn't been any such indication and we've been keeping a pretty close watch on the possible inflation indicators, particularly wage settlements and we'll continue to do that; on what's happening with the exchange rate, what's happening with housing prices and commodity prices, and any other aspect of incipient inflation, inflationary behaviour in the economy. But it must be said, to this stage there has not been a great deal, and of course they are .. our level of monetary policy has been kept rather tighter than that of the United States. Our real interest rates are higher than in the United States, and despite the tightening of their monetary policy, are still not as tight as ours. And so all these are relevant factors to bear in mind, in considering whether there should be further adjustments of monetary policy in Australia.

PHILLIP LASKER: Although you did mention, in answering one of your questions, that people had said to you, or there was the impression, that Australia had been sluggish in raising interest rates. That seems to be the impression in the United States.

RALPH WILLIS: Oh, yes. That certainly has been put to me, but I've been putting back to them the very points I've just been making to you.

PHILLIP LASKER: What's your response to reports that the Reserve Bank is considering introducing, or in some way trying to regulate home lending to curb home lending because of the inflationary threat?

RALPH WILLIS: Well, I've only seen a report this morning actually that the Reserve Bank has written to the banks to ascertain their views on some such development of things like changing the risk-weighting ratio for home lending. Those risk-weightings are essentially there for prudential reasons for banks and not as a regulatory factor, but clearly one possibility is that they could be used to, as a somewhat of a discouragement for increased housing activity. As I understand it, the Reserve Bank has simply sought discussion with the banks about that, and presumably I'll be informed of the outcome of that discussion.

PHILLIP LASKER: But do you think it's a worthwhile course of action?

RALPH WILLIS: Well, I think it's worth having the analysis done, yes. We might as well see what the implications of all that would be, so it's worthwhile in that sense, yes.

PHILLIP LASKER: And what are the implications of someone like the Deputy Prime Minister, Mr Howe, saying that privatisation isn't the way in the 90s, and we ought to revisit some of our plans to privatise or sell off assets?

RALPH WILLIS: Well, I haven't seen exactly what Brian said, although I have seen some press reports to that effect since I left home. While the Government's made its position clear about privatisation of various assets, they've been Government decisions; they've been endorsed by Cabinet in respect of Qantas and AIDC, the Federal airports and ANL; these are all areas which the Government is committed to privatising and essentially the decisions to take those steps have all been reached in Cabinet without demur.

PHILLIP LASKER: What would it mean for the Government if those plans were derailed in some way by the national conference?

RALPH WILLIS: Well, obviously that would not be something that the Government would be desirous of .... happen. It would have some implications for budgetary outcome in subsequent years, but it's not just a budgetary thing. I think in the case of the airports, there's certainly a case to be made that ownership that is more localised may more vigorously pursue airport development than sort of a government body or a centralised body operating from one State. I think a capacity of getting some competition between airports is, I think, a relevant factor, and certainly in Melbourne I think there's quite a view in the business community that there can be more activity brought to Melbourne by a more aggressive stance by the airport operator than has been coming from the FAC.

PHILLIP LASKER: Would it seriously affect investor confidence if those privatisations didn't go ahead?

RALPH WILLIS: Well, I think it would have some marginal budget effects in the sense that there is some factoring in of some broad outcomes from the airport sales in '95-6, '96-7, '97-8. Not to be able to go ahead with those would obviously mean that we had to achieve the outcome some other way.

ELLEN FANNING: Australia's Treasurer, Ralph Willis, speaking in New York with Phillip Lasker where he'd earlier addressed a business lunch organised by the Asia Society.