PM Transcripts

Transcripts from the Prime Ministers of Australia

Transcript 4591

INTEREST RATES, 8 DECEMBER 1977

Photo of Fraser, Malcolm

Fraser, Malcolm

Period of Service: 11/11/1975 to 11/03/1983

More information about Fraser, Malcolm on The National Archive website.

Release Date: 08/12/1977

Release Type: Media Release

Transcript ID: 4591

A U S TZHA I. I A
PRIME MINISTER
FOR PRESS 8 DECEMBER 1977
INTEREST RATES
Mr Whitlam, Mr Hayden and Mr Hurford will not commit themselves
to the Government's present policy of progressively lowering
interest rates through the rest of this financial year
because it is an implicit part of their plan to raise them.
They would simply have no option, given the totality of their
economic proposals. They know this only too well.
The inevitability of higher interest rates under Labor can be
seen from the statement published yesterday by the Treasurer,
Mr Howard, in which he analyses and costs Labor's proposals.
Under Labor ' te could well see an increase in this year's
Government deficit in the order of $ 1200 million. That is an
increase, in just six months, of about 50 percent in the deficit.
A budgetary expansion ofthis order would shatter confidence. of
overseas and Australian businessmen in Australia's investment
prospects. For most of this year investors have been expecting both inflation
and interest rates to continue falling through 1978. These
expectations would be destroyed by the sudden change in
fiscal and monetary policy that Labor would introduce.
Far from investors wanting to go on buying Government securities,
they would rapidly start selling them. This would be immediately
reflected in higher market interest rates. In order to try
to stem the tide, Labor would have to let interest rates rise.
To try to fund the mounting deficit, Labor would have to try to
sell more bonds, putting further pressure on interest rates,.
By mid-1978, we could expect. interest rates of up to 12 percent.
This would be disastrous for the now expanding investment
in plant, machinery, and factories. It would send the home building
industry into a downspin.
Instead of being able to look forward to a $ 10 a week saving in
interest rate payments on mortgages, home buyers would be paying
a weekabove what they are presently paying.
This is one example of the need to look at the totality of Labor's
proposals when assessing their economic impact. / 2

2.
When account is also taken of the impact of a blowing out
deficit on wages policy in a context of full wage indexation -the
inflationary prospect becomes even worse.
Double-digit inflation would be a realistic expectation in the
course of 1978. The consequences for Australia's external
account-would be clear and unavoidable.
These are the fundamental reasons why Labor could not, under the
proposals they have stated, get a swift pick-up in economic
activity and a reduction in unemployment. There would be
one clear result of Mr Whitlam's scheme to crack all Australia's
problem in one crash spending spree: higher inflation-, much
higher interest rates, and soaring unemployment.

Transcript 4591