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Australia's Keating Tries to Spur Economy

By Ron SchererStaff writer of The Christian Science Monitor / February 26, 1992



SYDNEY

AUSTRALIA'S Prime Minister Paul Keating is hoping to put some hop into the economy.

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Mr. Keating, who admits partial responsibility for throwing Australia's economy into a tailspin, will announce a program of new government spending and incentives for business on Feb. 26. The former Treasurer calls the program "the largest single package of constructive measures I've been associated with."

The package is critical to the political future of the Australian Labor Party (ALP). Unemployment is currently 10.3 percent and is expected to rise in the next six months. "There is every indication the Labor Party is heading for a huge disaster and must make some effort to turn sentiment around" before elections next year, says Ernie Chaples, managing director of Media Polls, a pollster for Labor in New South Wales. Keating, who replaced Prime Minister Bob Hawke in December, was only the choice of 25 pe rcent of the voters polled last month.

The plan, according to press reports, is likely to include:

* An additional $2 billion (Australian; US$1.5 billion) in new government spending. Most of this spending will be on "infrastructure" programs such as improved rail transportation, port improvements, and new airport terminals. There will be extra money for ring roads around Sydney and Melbourne with an emphasis on upgrading truck routes to the ports.

* The government will try to stimulate new business spending by liberalizing depreciation rules. At the same time, Keating is considering easing the tax laws for banks on bad or doubtful loans in the hope of getting more loans flowing.

* To help those who are unemployed, the government is expected to provide more money for 60,000 additional students at the Technical and Further Education (TAFE) schools around the nation.

Before deciding on these and other programs, Keating held a series of meetings with business, labor, and political leaders around the country. Mr. Chaples says these meetings helped give the impression Keating had developed the program after broad consultations with the community. This approach contrasts with the opposition's "Fightback!" program, which incorporates a goods and services tax, developed in secrecy late last year.

Even before Keating announced the package, the opposition Liberal Party was on the attack, especially about the effect of additional spending on the federal budget. Access Economics, a Canberra consulting group, estimates the budget deficit could expand to $10 billion in the 1992-93 fiscal year. "It is a very clear warning to the prime minister," says opposition leader John Hewson.

However, William Evans, chief economist for the Westpac Banking Corporation, the nation's largest bank, says the extra $2 billion in spending will not have any negative inflationary or balance-of-payments consequences. Westpac expects the extra spending to increase the budget deficit to $6.5 billion to $7 billion. This increase won't put pressure on interest rates, says Mr. Evans, since "There is no sign the private sector is reviving." Westpac now expects the economy to recover around mid-year.

Some of the government spending may ultimately help the country compete better in world markets. Paul McCarthy, chief economist for the Commonwealth Banking Corporation, is complimentary of efforts to improve infrastructure that will aid exports.

Evan Jones, a senior lecturer in economics at Sydney University, says the Keating approach includes some positive pragmatic policies. However, he says some of the decisions are faulty, such as trying to get the banks to expand their lending. "That's part of the problem, ill-conceived lending," Mr. Jones says.