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Tuesday, 17 February 1987
Page: 122

Mr HOWARD —I refer the Prime Minister to Australia's near double digit inflation rate and to our huge current account deficit, highlighted by the worst January figure on record. Does the Prime Minister still hold to the view that the strategy of the last Budget has laid the ground for a substantial fall in interest rates this financial year? If so, when will that substantial fall begin to occur?

Mr HAWKE —The Leader of the Opposition, surprisingly, referred in his question to interest rates and inflation. Let me just say, on the question of inflation, that we inherited when we came to government--

Opposition members interjecting-

Madam SPEAKER —Order! The Chair does not intend to put up with any vexatious interjectors.

Mr HAWKE —Madam Speaker, I understand the concern of the Opposition. The point I am making is that we inherited an inflation rate of 11 1/2 per cent and by the end of 1985 we had more than halved that rate. Even with the imposition upon this country of the enormous, adverse effects of the massive decline in terms of trade, and with the associated depreciation of the Australian dollar, the inflation rate in this country has not returned to that inflation rate which the Leader of the Opposition handed on to this country. It is still significantly below that inflation rate.

I go to that part of the question of the Leader of the Opposition which deals with interest rates. It is the fact that high interest rates are an inevitable feature of adjustment to Australia's current account difficulties. As much as this Government obviously would welcome lower interest rates, it is quite clear that we are responsible economic managers who, unlike the Opposition, eschew politically expedient quick fixes. We have reduced the burden on monetary policy by pursuing appropriately restrained fiscal and wages policies. It is all very well for the Leader of the Opposition and other honourable members opposite now to preach the virtues of low Budget deficits and of balanced Budgets. They were the people who bequeathed to this country a prospective deficit of 5 per cent of gross domestic product. Under the responsible economic management of this country-particularly under the management of the economy exercised by my colleague, the Treasurer-that inherited 5 per cent of GDP has been successively reduced to about 1 1/2 per cent.

We look to 1987 with a cautious optimism about the economy including a fall in interest rates in 1987, though, as I have said on many occasions-and I repeat on this occasion-the timing of such a fall will be affected by external factors, including what happens to world commodity prices and what happens to international financial conditions and sentiment. It will also depend on the pace at which the current account deficit declines. The country is presented with a responsible, cohesive mix of economic policies which will produce those results, as against the pie in the sky nonsense which day after day is coming from the Opposition. Until the Leader of the Opposition was last night and this morning scuttled by his coalition partner, what we were looking at was an $8 billion deficit credibility gap of the Leader of the Opposition. Now that $8 billion credibility gap has been thrown up to $11 billion because the Leader of the Opposition has received his marching instructions from the Premier of Queensland, who is about to replace him. What was an $8 billion credibility gap of the Leader of the Opposition is now $11 billion. And this man has the hide to talk about inflation and interest rates! If those policies of the Leader of the Opposition were ever given an opportunity to be effected, the deficit would blow out and interest rates would go through the roof. He has no confidence and no credibility.