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A review of economic events during the past financial year

PETER THOMPSON: And finally for this week, it is 30th June, the end of a financial year which began with mortgage rates at just 13.5 per cent. It is a year in which we were promised inflation would fall to a mere 4.5 per cent. It is a year in which we were promised Australian companies would continue to grow rather than collapse. It is a financial year economics correspondent, Peter Martin, calls the year of lost opportunities.

PAUL KEATING: Well, this is the one that brings home the bacon. This is the Budget that pulls the whole game together, from 1983 onwards, and consolidates almost everything we've done in that time.

PETER MARTIN: It was an optimistic beginning. We were promised tax cuts at the end of the year, in return for wage restraint within it. Along the way, inflation was supposed to tumble, and the current account deficit was supposed to drop. The magic formula - a cut in the sales tax on goods such as beer, and continued high interest rates, or - in the Government's words - tight monetary policy.

The Budget was well received, perhaps too well received, and almost immediately things went wrong. The screen jockeys gave it a vote of confidence; they pushed up the dollar, and as a result we found it harder to sell goods overseas. Consumers and business gave it a vote of confidence. They spent, pushing up prices and pushing up our import bill. The more the Government tried to slow the spending, by pushing up interest rates, the more the screen jockeys pushed up the dollar.

And something else was wrong. High interest rates didn't appear to be slowing spending in the way they once would have. The early warning signs, on problems such as inflation, weren't taken seriously.

BOB HAWKE: We expected that the September quarter would be the highest of the four quarters. It is our expectation that, for the rest of the financial year, the CPI figure will come down, and that we'll be heading towards that figure of 4.5 to 5 per cent inflation at the end of this financial year.

PETER MARTIN: After that, inflation accelerated, so much so that the Government asked the Statistician to investigate changing the way it was calculated. We'd had too much of a good thing.

PAUL KEATING: Basically, the glass is too full, and the effervescence is spilling over the sides, and that effervescence is the current account and inflation.

PETER MARTIN: Treasurer Keating was wary of pushing interest rates any higher, partly because of where it would push the dollar, and mainly because he had little idea of how high would be high enough and how high would create a recession. With hindsight, we can say that he waited too long, and by the time he'd used Reserve Bank intervention to break the link between the dollar and high interest rates, and by the time he did push interest rates higher, it had to be very high indeed. Rothwells and Spedley went to the wall, while Hooker's and Bond moved closer to the edge.

The year ends with inflation around 7 per cent, instead of the promised 4.5; the current account deficit at around $17 billion, instead of the promised $9.5 billion; and the dollar back where it was, after shooting up almost to 90 US cents.

Tomorrow, we get the tax cuts we were promised as part of a Budget strategy that has long since been overtaken by events. Whether that's the right decision - well.

PAUL KEATING: I've had this job nearly seven years. Never, knowingly, have I pulled a wrong lever. Never - knowingly - and I'm not about to start now, I can tell you that.

PETER THOMPSON: Paul Keating, and Peter Martin reporting, bringing this financial year to a close.