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Monday, 20 May 1985
Page: 2127

Senator PETER RAE —My question is directed to the Minister for Finance and concerns last week's mini-Budget and the following Economic Planning Advisory Council meeting, and all the associated calculations and scrutiny of financial data which, presumably, has given the Government the opportunity to assess exactly where the economy is going. On that assumption, I ask: What impact will the decisions announced last week have on the rate of growth of public debt, the rate of unemployment, interest rates and inflation? I further ask: What rate of unemployment, inflation and interest rates would be regarded as acceptable to the Government by the end of this calendar year?

Senator WALSH —As I am sure Senator Rae knows very well, it is not possible to give anything like a precise answer or even an imprecise answer to most, if not all, of those parts of the question, at least not without adding a number of qualifications. It is possible to say-indeed it is tautological-that in the absence of the spending cuts announced last Tuesday and if other things had remained equal, either public debt would be $1.25 billion more or the Government would have funded its transactions in some way other than borrowing or raising revenue, such as borrowing from the Reserve Bank of Australia.

With respect to the second part of the question, on unemployment, so many factors are entailed in determining the level of unemployment that I do not think it is possible sensibly to attribute any level of unemployment to any single policy. The same applies to interest rates and inflation rates.

If it would make Senator Rae feel any better, I am willing to make a comment about those three things collectively. As a result of the devaluation of the dollar, employment is likely to be higher than it would otherwise have been. Interest rates, other things being equal, are probably likely to be somewhat higher than they would otherwise have been and, likewise, the inflation rate is likely to be somewhat higher than it would otherwise have been, at least in the short term. Whether that mixture of desirable and undesirable factors-undesirable considered in isolation-is sustained depends on what happens further down the track.

At this stage I am certainly not willing to state what level of inflation or interest rates would be satisfactory to the Government or to me at the end of this year. There is every indication-there were strong indications even before, and those expectations have been heightened-that further substantial progress will be made in the growth of employment. Whether that is reflected in a reduction in the unemployment rate will depend on the participation rate as well as the absolute level of employment. Since this Government has been in office total employment has grown by some 350,000, from memory, in line with the target which the Government set for itself of 500,000 additional jobs within its first three years in government. In spite of the blip in the statistics in the last couple of months, revealed in the Australian Bureau of Statistics survey, which, at least in the short term, has long been recognised as being unreliable, there is no reason to believe that that target will not be met.

Senator PETER RAE —I ask a supplementary question. In view of the fact that the Minister prefaced his answer by saying that as a result of devaluation certain things would happen, am I to take it that he is not prepared to answer the question at all or does he not expect there to be any impact as a result of last week's mini-Budget?

Senator WALSH —If last week's economic statement were taken as a one-off exercise and if nothing else were to happen, the public debt and public sector borrowing requirement would have been higher, and it would be reasonable to expect some upward pressure on interest rates and on inflation. Unlike the previous Government, and in particular the previous Prime Minister, I do not want to sound too simplistic about these issues and to suggest that there is, for example, a simple and inexorable correlation between the size of the public sector borrowing requirement and interest rates because there are numerous examples and a great deal of empirical evidence which demonstrate that those correlations have not always held either in a 1:1 ratio or, indeed, in any positive ratio at all.