Country Report Australia October 1996 Main report

Outlook for 1997-98: Fiscal tightening will continue in 1998--

The next federal election must be held by May 1999 at the latest. However, it is unlikely that the federal treasurer, Peter Costello, will want to configure the 1997/98 or 1998/99 budgets as pre-election give- aways. The government's majority in the House of Representatives is so large as to make an opposition victory in the lower house of parliament almost impossible, and only half the senators come up for re-election at any one time. So far, the government appears to have gained public support for sticking to its guns, and it will not want to be accused of political opportunism.

--and other policy objectives may become better defined

Some attention should be paid to constitutional issues in 1997-98. The agreement of inflation targets for the Reserve Bank (see Money & finance), reached by an exchange of letters between the treasurer and the bank's governor, will encourage consideration of the role of the bank in policy- making. While a formal constitutional arrangement guaranteeing the bank's independence (as in New Zealand) is unlikely, the balance of power in economic policy-making may begin to change, although the government will still be held responsible for the effects of tight monetary policy. Another issue that needs to be resolved is the exact relationship between Canberra and the states over economic issues. The states objected to certain measures in the federal 1996/97 budget which deprived them of revenue, and it is unclear how well the transfer of certain administrative functions over to the states will work. Other coordination issues, for example over the proposed electricity national grid, must be resolved. Dates for Mr Howard's promised constitutional convention on the desirability of Australia becoming a republic have yet to be set.

Economic results and forecasts (A$ bn at constant 1987 prices; % change year on year in brackets) 1995(a) 1996(b) 1997(b) 1998(b) Private consumption 255.43 265.65 273.62 281.01 (4.3) (4.0) (3.0) (2.7) Public consumption 71.54 72.97 74.07 75.55 (3.2) (2.0) (1.5) (2.0) Gross fixed investment 91.91 95.12 98.93 104.86 (2.4) (3.5) (4.0) (6.0) Final domestic demand 418.88 433.75 446.61 461.42 (3.7) (3.5) (3.0) (3.3) Increase in stocks 2.74 -0.50 -0.20 -0.30 (0.3)© (-0.8)© (0.1)© (0.0)© Total domestic demand 421.62 433.25 446.41 461.12 (4.0) (2.8) (3.0) (3.3) Foreign balance -0.08 3.59 5.45 7.08 (1.0)© (0.8)© (0.4)© (0.4)© GDP(d) 421.54 436.84 451.86 468.20 (2.9) (3.6) (3.4) (3.6) Exports of goods & services 92.05 103.56 113.92 125.31 (4.3) (12.5) (10.0) (10.0) Imports of goods & services 92.14 99.97 108.47 118.23 (9.8) (8.5) (8.5) (9.0) (a) Actual. (b) EIU forecasts. © Change as a percentage of GDP in the previous year. (d) Expenditure measure.

© 1996 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information