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Melbourne, 28 April 2000: transcript of doorstop [inflation; beer prices]



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Doorstop Interview

Simon Crean - Shadow Treasurer

Subjects: Inflation, Beer Prices

Transcript - Melbourne - 28 April 2000

E & OE - Proof Only

CREAN: A year ago Peter Costello said the inflation dragon was slain. The problem is his GST has breathed new life into the inflation dragon and these figures today confirm it. It's not good enough to blame it on petrol prices. What he's got to look at is the early commencement of flow-through into the CPI of GST induced factors. Even the employers' organisation has drawn attention to the GST induced factors. This latest price rise is bad news for consumers, it means that they have to not only pay more now, but this is in advance of the full impact of the GST coming in. The Government is still in denial about the inflationary impact of the GST but it's inflation that's the predominant driver of interest rates and we've already seen three interest rate hikes in the last eight months and this inflationary impact is not going to ease that circumstance.

JOURNALIST: Are we on the way to double digit interest rates?

CREAN: I can't speculate on what the interest rate moves will be and what will happen to interest rates. All I can draw attention to is the simple truth that it's inflationary factors, it's inflationary expectations that lead to interest rate rises and it's the GST in this country that is predominantly driving those expectations now and which analysts say will inflate, will drive up inflation faster than the Government said would happen. Analysts are saying that the inflation impact of the GST will be somewhere between 4 and 6 per cent, that's on top of this 2.9 per cent, on top of. Yet the Government wants people to believe that the GST will only impact to the tune of 1.9 per cent. It's nonsense and they know it. And for every interest rate rise that happens it means that people's compensation packages are eroded, they're paying more on mortgages, they're paying more on the credit card. This is a Government that deceived about the full impact of the GST and the chickens are coming home to roost early.

JOURNALIST: The Opposition must be greeting these ...(inaudible)... with glee though ... doesn't reflect well for the Government.

CREAN: We are not treating them with glee. We are saying that this is what we said would happen. We are saying that this is a bad tax for the economy as well as being an unfair tax, and the fact that we're getting inflation spikes like this in advance of the GST

coming in proves the point that we were making. This is a government that deceived about the GST. These figures are starting to confirm that perception.

JOURNALIST: Mr Crean the figure is no worse that when your Government lost power.

CREAN: The inflation, the low inflation environment was bought about through Labor governments' economic record. Make no mistake about that. The Accord was the predominant reason we were able to lock in low inflation. Labor broke the back of inflation. This Government inherited it. This Government has had a low inflation environment for all of its four years off the back of policies that we put in place. What they've done is to introduce a policy mechanism themselves, which has regenerated the inflation surge. This is due to the GST and they are responsible for that.

JOURNALIST: Inflation seems to have been steadily climbing. Is this the beginning of a cycle where we're going to see interest rate rise met by higher inflation, bearing in mind the GST introduction?

CREAN: I think what we've got to be prepared for is the GST impact feeding more strongly into the inflation rate. And if inflation goes up, that puts pressure on interest rates. It's a simple equation. What you've got to look at is what's driving this inflation spike this quarter, and apart from the petrol issue, there are early flow through impacts of GST induced factors. Insurance, housing, holidays, etcetera, to name a few. Now the GST comes in on July 1. That's when there will be the actual increase as distinct from the early flow through and the expectations. What we will see is an inflation impact far higher than the Government projected. That means pressure on interest rates, it means the compensation package is eroding.

JOURNALIST: ...is Labor going to back the Democrats on the beer excise question?

CREAN: The Labor Party expects the Democrats to support us in putting pressure on the Government to honour its promise on beer prices. We have drawn attention to this issue some months ago. We raised it in the Parliament. We called on the Government to honour its promise. I noticed today that Peter Costello in his press conference said, 'what's the difference between beer and other products?' I'll tell you what the difference is. It's the Prime Minister's word. He went to the last election, not once but on three occasions saying the price of ordinary beer will only go up by 1.9 per cent. Draught beer, beer in the pub is ordinary beer. The Prime Minister's word is at stake here and if the Treasurer is saying that he's not going to budge, he is dumping on the Prime Minister. And it also ought to be noted, that the Treasurer said he wasn't going to move on petrol either. He said that the GST would not push up the price of petrol and yet, in the last fortnight he had to introduce a $500 million package to try and meet his promise. Let's see what happens on the beer front but our commitment is ensuring that the Government honours its promise, that the Prime Minister keeps his word. He made

it, he's got to keep it, they've got to find the means to pay for it.

ENDS

Authorised by Geoff Walsh, 19 National Circuit, Barton ACT 2600.