P.M. delays confrontation on economy

Press, 29 January 1988, Page 1

P.M. delays confrontation on economy

By

OLIVER RIDDELL

in Wellington

The Prime Minister, Mr Lange, has postponed a looming confrontation with his caucus and placated Cabinet Ministers unhappy with the speed of events, by announcing yesterday the deferral of parts of the December 17 economic package.

The deferral is not a victory for Labour’s Left-wing so much as a realisation by the Government that it was moving too far too fast. This was the message received from caucus sources after Mr Lange’s post-caucus announcement that the flat tax rate proposal and guaranteed minimum family income scheme proposed for October 1, would be put off. The deferral is also in line with comments by the Deputy Prime Minister, Mr Palmer, over the summer holidays, that the Labour Government was laying itself open to charges of being arrogant. Mr Palmer had not supported the December announcement and the Prime Minister had been known to have preferred a lateJanuary or early-February an-

nouncement. The December 17 announcement had been at the instigation of the Minister of Finance, Mr Douglas, and was intended to inject more confidence into a business community reeling after the October sharemarket crash. If confidence was injected, it was at the expense of the Government’s credibility. But with the postponement announcement, the Prime Minister had reasserted his leadership. Mr Lange has been back at work for several weeks now. He has become more aware of dissatisfaction with aspects of the package and their timing, allied to alarm at unemployment levels. There has been no opportunity and little time for this unhappiness to turn into anything resembling a caucus revolt. But. Mr Lange decided to act anyway.

Last week, he wrote to his M.P.s foreshadowing his announcement. In doing so he defused potential anger which might have spilled over at yesterday’s caucus. He was helped by the absence of Mr Douglas overseas plus the assurance that issues -could be discussed at a planned two-day caucus in Ashburton on February 10 and 11. At that meeting, Mr Lange and his Cabinet will be confronted by three unpalatable points.— ® Unemploymentisrunningata level unacceptable to the caucus, requiring policies to be discussed and targets to be set. © Projections for the financial year show a budget deficit and not the surplus which the Government forecast before last year’s election. @ Intelligence from the business community shows some businesses are serious about their intentions to go overseas — most to Australia. Mr Lange’s announcement of the deferrals yesterday was not inconsistent with improvements in these three areas. Some Labour caucus members said yesterday that although Mr Lange had announced more about the deferrals than was in his letter to them, it was not inconsistent with what they were thinking. What the Government wants above all else is a drop in the exchange rate in such a way that it does not refuel inflation. The deferrals are not inconsistent with that aim.