Parallels with Aust. in lead-up to Budget

Press, 3 November 1984, Page 30

Parallels with Aust. in lead-up to Budget

NZPA staff correspondent Sydney When Australia’s Treasurer, Mr Keating, brought down his first full Budget last year, he stamped his own authority on the country’s economic direction and brought the Labour Party out of the shadow of Malcolm Fraser’s Conservatives. At the same time he broke the power of the Treasury, placed the Government’s fate firmly in the hands of the unions, and began an economic turnround that this year earned him the accolades of his international peers. In just about every important aspect, the fortunes of New Zealand’s new Labour Government have followed those of the administration of the Australian Prime Minister, Mr Hawke, on this side of the Tasman with some uncanny Parallels.

Both swept to power in snap elections, both faced immediate currency devalluations, both found the economy in a mess, both quickly called economic summit conferences to set the new lines, and both have proved immensly popular. As the New Zealand Minister of Finance, Mr Douglas, puts the finishing touches to the Budget he will deliver on Thursday, November 8, he will have as an example the success achieved by Mr Keating to aim for.

When Mr Keating finally got his hands on Australia’s economic books last year after the March 5 election,

he found — although the sceptics believe it was well known to Labour — that Australia was facing a Budget deficit of a projected sAust.9.6 billion ($16.7 billion). The “discovery” was enough for Labour to throw out or shelve some of its more expensive electoral promises, particularly immediate tax cuts, and after some initial tinkering which included an immediate 10 Eer cent devaluation, rought down a mini-Budget in mid-May. That document was called the Robin Hood mini-Budget because it basically hit the rich hard and gave to the -needy.

Tax exemptions went out the window, Fraser Government programmes were axed, big works programmes were shelved, and lump-sum superannuuation was marked for taxing. At the same time Labour killed two birds with one stone by increasing funds for public housing 50 per cent and introducing a firsthomebuyer scheme that while stoking the fires under the economy and basing immediate recovery on a building boom, also boosted jobs by an estimated 70,000.

The measures combined to haul the projected Budget deficit back to sAust.B.6 billion ($l5 billion) for the new financial year — the fear was that to achieve the figure, the August Budget was going to be a shocker. The nation heaved a sigh of relief when Mr Keating brought down his first big

economic document, and it was so innocuous that in some quarters it was labelled the standstill stimulus.

The dirty work, it appeared, had been done in May. However, the main point of the Budget was that it enshrined the wages and prices accord the party had signed with the unions before the election, and put the onus for the Government’s survival and the nation’s recovery on to the unions.

It was also significant in that Mr Keating showed he was his own man and dispelled suggestions in several quarters that he was an inexperienced puppet on strings pulled by the Treasury secretary, Mr John Stone.

What helped Mr Keating was that the Australian economy was already riding on the growing wave of international recovery, boosted by the droughtbreaking rains that produced a huge money-earn-ing surge in rural production.

In a cunning move he increased taxes on cigarettes, beer, and petrol, then indexed them to inflation so that future rises would not be blamed on the Government, but on the state of the economy instead. He was working on an inflation rate of 7.5 per cent, a growth rate of 3 per cent, and a deficit of sAust.B.46 billion ($14.7 billion). The year ended last June with the Budget only sAust7.9

billion <513.7 billion) in the red.

It aimed to help disadvantaged Australians by lifting the dole, doubling the meagre amount unemployed could earn before attracting tax, slashed sales taxes on basic household items, and dispensed a few “carrots" to families with children.

He avoided being severe on sectional interests or income groups, aimed at keeping inflation under control, and involved Labourstyle spending with con-servative-style funding. “It is designed to provide a floor of activity in the economy while the private sector recovers,” he said in his Parliamentary address. A projected assets test to add to the already-touted tax on lump-sum superannuation eventually raised such an outcry that a final, liberal formula was not settled until this year. Mr Keating kept faith with the unions and at the same time gained more confidence from the business sector by keeping the deficit under control, after some reportedly savage work by a “razor gang” of ministers working on Government spending plans, and exercising discipline. Two other significant strategies emerged. The first was that to prepare the electorate for what was to come, the Government’s plans and priorities were made clear well in advance in a series of planned leaks. The second was that it was an election Budget — 12 months in advance.