Hawke Shifts Economic Policy

Prime minister's strategy to improve Australian competitiveness angers environmentalists

MIDWAY through his fourth term as prime minister, Bob Hawke is making refinements in his economic policy. The changes are targeted to help the ailing manufacturing sector, promote new investments in natural resource projects, and ultimately lower prices for consumers by accelerating tariff cuts. But by making these changes, Mr. Hawke has provoked an outcry from the nation's various environmental groups.

Hawke announced the changes March 12 in a speech to Parliament. "The days of our being able to hitch a free ride in a world clamoring, and prepared to pay high prices, for our rural and mineral products, are behind us," said Hawke in his address.

Among the proposals are:

A reduction in protective tariffs. Hawke says this will lower the cost of a $20,000 automobile about $2,000 to $3,000 (in today's dollars) over the next 10 years. Tariffs will also be reduced on textiles, clothing, and footwear.

A simplification in the way businesses account for depreciation. This should stimulate investment by giving corporations greater discretion in determining the life of plants and equipment.

Resource security for major new wood-processing projects. The goal here is to phase out wood chip exports by the year 2000 and replace them with exports of paper projects.

The new Hawke initiatives are designed to fix structural problems in the economy, says Peter Forsyth, senior lecturer in economics at the Australian National University. "We have to come up with a lot of ways to improve our competitiveness," he says.

The Hawke administration hopes the measures will help ease the pressure on the current account deficit which currently runs at US$15 billion per year. However, the government did not agree to direct aid for exporters, which would have weakened its own arguments at the General Agreement on Tariffs and Trade. Australia is trying to end European and American agricultural export subsidies.

Mixed reactions

The business community's reaction has been lukewarm. Philip Holt, national director of trade and industry of the Sydney-based Australian Chamber of Manufacturers says the measures are a start. However, Mr. Holt adds, "They did not go quite as far as we would have liked."

The policy shifts are taking place during an economic downturn. Economic growth has declined over the past two quarters. Bob Graham, chief economist for Westpac Banking Corporation, expects the economy to begin recovering in the second half. "It will be positive for the whole year," predicts Mr. Graham.

Hawke rebounds

The initiatives also come as Hawke's support of the Gulf war coalition has reversed an all-time low in his popularity. "Some people are saying this is the government's last chance to get things right," says Dr. Forsyth.

The most controversial element in the Hawke plan is the guarantee that industry can log agreed-upon sections of old growth forest. Only three weeks ago, Hawke assured Peter Garrett, the president of the Australian Conservation Foundation, that he was opposed to the plan. The switch prompted Mr. Garrett to write Hawke, "the standing of your government in relation to this key environmental issue would be sharply diminished by any such legislation."

The shift also came as a surprise to the loggers. Three weeks ago, the Australian Logging Council met the prime minister. "I came out quite dejected," says Andrew Padgett, Tasmanian-based chairman of the Council.

What may have changed Hawke's mind is the large part of the trade deficit that consists of forest products. Australia currently imports US$1.5 billion worth of wood products, mainly paper. It exports only $300 million - mainly in pulp to Japan.

Forest industry supports

Without the resource guarantee, Padgett says an US$800 million pulp mill in Tasmania would not be built. "Would you invest in a pulp mill if you did not have the security of having the resources to use?" he asks.

However, the conservationists argue that the forest industry is already in the process of shifting to logging plantation forests.

The prospect of similar state legislation in Tasmania has likewise enraged the Greens, who have a controlling vote in Parliament.

Last week, the Greens said they would support a vote of no-confidence against the ruling Labor party, which would result in midyear elections. If Labor loses in Tasmania, it might be a bad omen for Hawke and his economic refinements.

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