Mr Birch astray on predictions

Press, 9 May 1985, Page 4

Mr Birch astray on predictions

By

MICHAEL HANNAH

in Wellington

The Opposition spokesman on finance, Mr Bill Birch, did not have much luck with his predictions about the Public Accounts, released yesterday. In a statement issued before the accounts, showing a deficit of $2783.5 million, were released, Mr Birch predicted that any rise above $2500 million in the deficit would be a result of additional spending in social welfare, particularly the Family Care package. The Public Accounts showed social services spending was down $43 million on estimates.

Mr Birch also predicted

that, in spite of any change in the deficit, interest rates would remain at record levels throughout 1985. Money market sources, however, contradicted this statement. They said that the announcement on Tuesday that the 1985-86 deficit would be considerably lower than forecast could see call rates fall in the next few days, as institutions adjusted their expectations of money flows for the next year. The Minister of Finance, Mr Douglas, also said on Tuesday that the Government would have to reappraise its stock tendering programme because of the likelihood that its 1985-86 deficit would be lower than

originally forecast. This statement was digested quickly by financial institutions yesterday, though one banking source said some institutions would wait to see if the deficit forecasts would make any change to the Government stock tender due this month, before adjusting their rates. In his statement, Mr Birch correctly picked that the Government would compensate the Reserve Bank for foreign exchange losses after the devaluation, but he appeared to “put a dollar each way” in his statement, as he allowed for final deficits below and above $2500 million. Should a deficit below

$2500 million have been reported Mr Birch said it would have been at the expense ’ of the farming community and the household sector. “Reductions in the Government deficit have been financed by charging for prescriptions, in spite of the firm assurance given by the Labour Party that they would not do so,” Mr Birch said. “Further savings have come from cutting back in the support for farming and industry at the expense of both of these, particularly important export industries.” The Government, he said • could not escape the fact that it had converted a

stable growing economy into an “economic mess.” Record inflation, interest rates, and lack of investment were the direct responsibility of the Lange Government, Mr Birch said.

He maintained that a deep recession was unavoidable, with interest rates remaining at record levels throughout 1985, and inflation continuing to rise in the June quarter, after which wage settlements would be the dominant influence on future inflation rates.

“No gilding of the lily will avoid the problems ahead and the Lange Government should prepare itself to accept the responsibility,” Mr Birch said.