Sir Robert adds own forecast of gloom

Press, 15 January 1986, Page 5

Sir Robert adds own forecast of gloom

Wellington reporter A wage-price spiral has been established and the Government is doing nothing to overcome it, the former Prime Minister, Sir Robert Muldoon, told the Orewa Rotary Club yesterday. Sir Robert gave his own gloomy forecast for the economy this year and attacked the Government’s competence, in an address intended to keen up the tradition of his New Year state-of-the-nation view. It was the eighteenth such address Sir Robert, who held the Finance portfolio from 1975 to 1984, has given at the same venue. The present wage round, which was "virtually out of control," would add 6 or 7 per cent to consumer prices and without changes to Government policy, inflation would be more than 20 per

cent by the end of 1986, Sir Robert said.

He pointed to the impact that such an inflation rate would have on the next wage round.

Even the downturn in economic activity which was inevitable this year would not break the wageprice spiral in view of “the mindless intransigence” of the trade union movement, he said. Sir Robert referred to the present wage-setting system as a “method of wage determination by strike action and industrial muscle.” The Government’s Green Paper did nothing but open the way for a continued “political trial of strength inside what is euphemistically called the Labour movement.”

Sir Robert predicted interest rates would remain relatively high, with a gen-

eral alignment near a midpoint Government Stock rate of about 17 per cent.

Government Ministers had been horrified by the levels reached by interest rates and price inflation and they had no real confidence that these would fall back in line with stated predictions, Sir Robert said.

He pointed to interest rate expectations and private sector borrowing commitments as factors holding up rates. Sir Robert predicted that the downturn this year would be much greater than the public could possibly realise now. He criticised the Government and its advisers for relying on “textbook theory” for economic management. The perversity of human decision making and timing were factors shaping the impact of policies in ways

almost impossible to inject into theoretical predictions, Sir Robert said.

The “human factor,” in the form of expectations about inflation, , interest rates and the wage round, was largely overlooked by the Government.

Inexperience meant it was relying solely on the simplistic advice of officials without adding the necessary political judgments, he

Sir Robert said a good formula for sound economic management was “to use all the tools that are available for the purposes which are best suited.”

He argued that statistics now showed clearly that management under the last years of his Government was “infinitely superior” to that of the last 18 months and that nothing during 1986 was likely to change that.