THE PRESS MONDAY, NOVEMBER 24, 1980. Limited choice in mini-Budget

Press, 24 November 1980, Page 20

THE PRESS MONDAY, NOVEMBER 24, 1980. Limited choice in mini-Budget

The mini-Budget about to be produced by the Minister of Finance, Mr Muldoon, will probably be no more exciting than the main Budget, introduced to Parliament five months ago. Now, as then, Mr Muldoon has little room for manoeuvre If he remains keen to dampen inflation and to halt the drain on overseas funds through the deficit in the balance of payments.

The consumers price index was 16 per cent higher in the September quarter this year than a year earlier. Food prices in October were 20 per cent higher than in October, 1979. The general price index, which measures the prices of inputs of goods and services (excluding labour) was 22.8 per cent higher in the September quarter this year than it was a year before: and wage rates were up 20.7 per cent. . The wage rates figure, a provisional one, is likely to be revised upward by a percentage point or so when adjusted for backdated awards. The general price index and the wage index are usually good indicators of movements in the consumers price index a few months ahead. The surplus on overseas trade transactions showed a rise of more than $l9O million in the year ended September; but the deficit on “invisible” items rose more than $l7O million. The current account balance was a deficit of $478 million. It is seven years since this account showed a surplus. The increase in payments for private imports shown in the Government Statistician’s projections for the year ending next March holds no promise of an early reversal of this trend.

The Government’s own operations this year, in spite of restraints that cause much complaint, have contributed to the rate of inflation and to the deficit in overseas exchange transactions. The Consolidated Account showed a defici t of . $1177 million in the six months to September compared with a deficit of $lOl3 million in the first

half ,of the previous financial year. The maintaining of Government spending at a level well above the tax receipts may help to keep the economy afloat in a time of business recession; it is not a cure for inflation, which itself is one of the causes of a downturn in trading and production.

Concerned as he must be within 12 months of the next election about the rate of inflation and about the continuing drain on overseas funds, Mr- Muldoon has declared himself to be even more concerned about unemployment and the sluggish state of the economy. The total of registered unemployed and of those employed on special work hovers stubbornly around the 60,000 mark. Consumer spending—as measured by the Government Statistician’s retail trade calculations (seasonally-adjusted sales per capita at constant prices)— was virtually at the same level in the September quarter this year as it was last September. This series is, perhaps, the best single, up-to-date indicator of living standards: it shows an improvement of 5 per cent on the trough in December, 1977, and a drop of 15 per cent' from the highest point recorded in the last 10 years, in September, 1974.

All Mr Muldoon’s political instincts will favour cuts in tax rates to boost consumption and will favour an increase in Government spending that would reduce unemployment and stimulate business activity in the private sector. All his experience as Minister of Finance tells him that any of these measures must exacerbate inflation and add to the balance-of-payments deficit. A partial escape from this dilemma is possible if the Federation of Labour will accept the principle of a cut in personal tax rates as being equivalent to an increase in wage rates. Whether Mr Muldoon has been able to sell this proposition to the F.O.L. should be apparent in the mini-Budget and in the conduct of wage negotiations which immediately follow it.