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Wednesday, 18 March 1987
Page: 1026

Mr PORTER —My question is directed to the Minister for Science and Minister Assisting the Treasurer on Prices-high prices. I refer the Minister to the most recent consumer price index figure which indicated that, largely as a result of government actions, prices for health services rose by 26 per cent over the last 12 months. In view of the fact that the Government also increased the Medicare levy by 25 per cent, what action will the Minister now take to reduce this rapid government-initiated increase in health care costs?

Mr KEATING —Madam Speaker--

Opposition members interjecting-

Mr KEATING —Questions should not be directed to the Minister Assisting when the Minister is in the House. Do honourable members opposite not know that? There are all sorts of influences on the consumer price index. Naturally, of course, the major influence, as my colleague the Minister Assisting said in answer to an earlier question, is the depreciation of the exchange rate and the fact that the lift in the profitability of the traded goods sector, which the whole depreciation strategy entails, is an important part of seeing a lift in investment in Australia to replace imports and to lift exports. That is, of course, the principal influence on the inflation rate. There are, of course, other influences. The honourable gentleman has referred to one-government taxes and charges, both at State and Commonwealth levels. Of course, as part of government taxes and charges in the health area, a number of increases in health costs have flowed from changes in the structure of salaries and awards for nurses in the hospital system and also for doctors and non-medical staff.

As far as the Commonwealth is concerned, in making that judgment between the reduction in outlays and any discretionary increases in tax which are part and parcel of any Budget in pursuit of certain fiscal objectives, a judgment must always be made about the impact of those taxes and charges on the consumer price index. We have said, and will say again, to the States at the Premiers Conference and the Loan Council that the States will need to be vigilant about charges which maintain activity, because the point of reductions in Commonwealth payments to the States is not about the maintenance of activity by the State sector paid for by an increase in discretionary taxes and charges, but about a diminution of activity by the State sector in satisfaction of broader national economic objectives. We will say to the States again that we require of them a diminution of the public sector share of resources in this country. That does not mean increasing charges to maintain the same activity. In regard to the Commonwealth, as I said earlier, whenever one faces the objective of reducing the Budget deficit, albeit by $2 of outlays cuts for $1 of changes to receipts-as was the case in the last Budget-the price effect on the consumer price index, of course, weighs on the Government's mind. Of course, as we have always done in making decisions of that variety, we will make sure that the impact on the consumer price index is minimal.

I repeat the point I made at the beginning of my answer: The major influence on the Australian inflation rate, which, I remind the House was down to 5 per cent in the year to March 1985, has been the depreciation of the dollar, which was, of course, a necessary part of restoring Australia's competitiveness, and the additional depreciations which have flowed from the massive terms of trade collapse I referred to yesterday. I remind honourable members of what I said yesterday. If we had the same terms of trade now that we had at Christmas 1984, we would have a current account deficit of $4 billion; hence a different exchange rate-interest rate equation would operate in the economy. But that is not to be and we must deal with it as it is. One of the unavoidable consequences of a large depreciation is an impact on the consumer price index, which is largely the cause of the increase in prices as expressed by the CPI in the last couple of years.