Aust. financial measures termed ‘tough, positive’

Press, 16 May 1985, Page 30

Aust. financial measures termed ‘tough, positive’

NZPA-AAP Sydney The Australian Federal Treasurer, Paul Keating, has set the scene for a tough August Budget, according to leading bankers and economists. In the short term, economists see the dollar and stockmarkets consolidating recent gains, while pressure on interest rates should ease.

Mr Keating announced cuts of more than j>Austl2oM from the forward estimates for social security and welfare payments.

The biggest cut — of sAust36.BM — will be made in the area of disability and war widows’ pensions. Other major cuts are ?Aust2sM by the adoption of revised procedures to reduce incorrect welfare payments and ?Aust2oM for the abolition of family allow-

ances for certain dependent students over 18.

Mr Keating said the Government had maintained its high support for the needy and had directed its cuts elsewhere.

Among the toughest of the decisions is a ?Austl2oM reduction in the Community Employment Programme, a tightening of family allowances, termination of grants to the States for pre-schools, and a ?Austl increase in the patient contribution under the Pharmaceutical Benefits Scheme. Australia’s rural community has also been hit hard by the removal of the petroleum products freight subsidy which will mean an increase in petrol prices of up to 4c a litre in country areas from May 21, boosting Commonwealth revenue by sAustll6M. Mr Keating also took the opportunity to tell trade

unions that any productivity increase in wages should be deferred until the scope of the depreciation of the dollar and the extent of the effect on the economy became apparent — which could be as far away as next year. The social security and welfare budget is pruned by sAustl27.2M, with part of the savings expected from greater efforts to detect fraud and mispayment within the system. Education spending is cut by sAust73.4M and real growth in defence spending for 1985-86 has been pared from 4.5 per cent to 3.1 per cent. The Minister of Defence, Mr Kim Beazley, said later that outlays would continue to emphasise longterm investment in weapons, equipment and facilities, including the guided-missile frigates, F/ A-18 Hornets and Seahawk helicopters. The biggest cut in any one area is in industry assistance and development where revision of the Export Market Development Grants Scheme will contribute ?Aust4BM to over-all savings of ?Aust2o4.lM. Westpac Banking Corporation’s managing director, Mr Bob White, said Mr Keating was now locked into bringing down a tough Budget in August. Mr White said the statement should be favourably received by the business community and is seen as a good start to bringing down the size of the Federal Budget deficit. He said he expected Mr Keating to come under considerable pressure between now and August to maintain a tough line. Mr White said the cuts were a “clear signal to the State governments to do the same in the months ahead.” The Commonwealth Bank’s managing director, Mr Vern Christie, said the Keating statement would be welcomed by the business community and would relieve the pressure on the financial markets. Mr Christie said the moves to reduce the budget deficit were a “step in the right direction.” He said the reduction in the deficit would allow the private sector greater access to finance to meet its funding needs. The economist with Australian Bank, Ltd, Mr Leigh Scott-Kemmis, said the cuts appeared to be a mixture of forward estimates reductions and actual real cuts.

He said the fundamental cuts were likely to be seen as extremely positive, with the markets now giving Mr Keating “the benefit of the doubt” and the “steady-as-she-goes policy, giving hope to the markets in the months ahead.” The economist with Wardley Australia, Ltd, Mr Jeff Schubert, said the cuts reaffirmed the Government’s commitment to meet its trilogy pledges. Mr Schubert, however, expected to see a slightly bearish tone to the markets, reflecting overbuying of both the dollar and securities in the lead up to the statement. In London investors welcomed the mini-Budget as a boost to international financial confidence in Australia.

The tight monetary policy of the Federal Government was taken as a sign that the Hawke administration has a firm grip on economic policy and on the unions. The statement by Mr Keating had been broadly anticipated in Europe, with good buying of Australian equities in recent days.