Mild recession forecast for Australia

Press, 9 May 1984, Page 42

Mild recession forecast for Australia

NZPA-AAP Sydney A mild recession will hit Australia next year, with a temporary drop in inflation and a steep rise in unemployment for at least three years, according to the Australian Merchant Bankers’ Association. The association made the forecast in a submission to the Economic Planning and Advisory Council, the “Australian” newspaper reported. The submission says the economy will experience a classic boom-bust over the next three years, shrinking by half of 1 per cent in 198586 as compared with the 2 per cent drop in 1982-83. Inflation is predicted to fall to 7 per cent in 1984-85 but to rise to 10 per cent the year after “on the back of wage indexation.” The association submission holds little hope for Australia’s jobless, saying that although unemployment should level out at 8.8 per cent in 1984-85, it will

rise to 10.5 per cent in 198586 and to 11.5 per cent in 1986-87.

The forecast comes amid speculation that the Prime Minister, Mr Hawke, plans to call an early election before the economy goes bad again. “It is clear that the Federal Government’s revenue and expenditure programmes, if left unchanged, pose serious threats to the ability of the economy to embark on a sustainable recovery,” the submission says. “A boom-bust growth cycle accentuated by continued large Budget deficits and combined with stubborn and excessive real interest rates, do little to induce the necessary confidence needed for a recovery in consumption and the longterm investment required.” The association says it “strongly recommends’ that the Government undertake measures to reduce the structural component of the

deficit to an optimum of zero. “Without a concerted effort to reduce the structural deficit, the economy is threatened on a number of fronts.” Alongside its criticism of the Government, the submission suggests that reforms such as the introduction of a 15 per cent valueadded tax be introduced to replace present sales taxes and to allow a lowering of company tax. The submission says the proposed V.A.T. would reduce the effective rate of company tax as it would be applied to capital goods. It would also improve the balance of payments as exports would be exempt while imports would be taxed. The association also calls on the Government to introduce a capital gains tax and wealth and inheritance taxes as part of “a longterm rationalisation” of the tax system.