Australian Leaders Lock Horns on How To Revive Economy

JOHN HEWSON, the Australian opposition leader, is staking out a field of debate for the national election next year.Mr. Hewson, of the Liberal Party, will propose a significant change in the Australian tax system Nov. 21 as his party's major economic plank. Hewson's plan calls for a 15 percent consumption tax on goods and services, paired with reduced income taxes for low and moderate income groups, and a cut in gasoline excise taxes. Hewson is introducing the tax against the advice of some political advisers and is staking his future on his ability to sell the plan to the public. Most recent public opinion polls place Hewson about 8 percentage points ahead of Prime Minister Bob Hawke. The opposition plan follows Mr. Hawke's decision Nov. 14 to resist pressure to jump-start the economy with massive government spending. Instead, Hawke proposes a modest spending boost of $313 million (Australian; US$249 million) to try to lower Australia's 10.1 percent unemployment rate. Hawke can afford this conservative approach in part because the economy is starting to recover: Retail sales showed some strength in September, and housing markets are responding to lower interest rates. Economists, however, expect unemployment to remain high for some time. "Nothing the government does today will help in the short term," says Bruce Freeland, a senior economist at the Commonwealth Bank in Sydney. Mr. Freeland expects unemployment rates to peak in March 1992. Reasons for the slow growth in employment are similar to those in the United States: low confidence from business and consumers. "Fear of unemployment is making people much more cautious," says Dennis Mahoney, a senior economist at Westpac Banking Corporation. Even when the economy rebounds, Freeland expects unemployment may remain at 7 percent to 8 percent for the next three to four years. Core areas, such as public service, finance, and state-owned companies, are now shedding workers. "The easiest way to cut cost is to cut employment," says Freeland. The bulk of Hawke's new spending will go toward retraining those laid off. The government will spend an extra $130 million to fund 40,000 additional students at the Colleges of Technical and Further Education, which specialize in vocational education and training. "High quality investment in additional training now will deliver a work force better suited to the challenges of the future," Hawke told Parliament. Hawke also plans to accelerate infrastructure projects which normally would have begun later. This too is a modest program, involving $100 million in road and rail projects. Hawke also approved construction of a third runway at Sydney Airport. But people living in the flight path of the proposed runway promise to fight the project in the courts. The Sydney project will take four years to complete and will employ 8,500 workers. "It's not a panacea, it's not going to turn the economy around, but it does represent real benefits in the short run," says Michael Yabsley, the New South Wales minister for state development and tourism. The business community praised Hawke's restraint, but labor leaders and some politicians do not feel he went far enough. "The program is totally inadequate," says Bill Mitchell, an economist at the University of Newcastle. Mr. Mitchell recommends the government pump $1 billion into employment schemes. He estimates this would employ 118,000 laborers. "There are social costs, not just economic costs, by not doing anything," says Mitchell. "You have an increase in crime, domestic violence, and social instability." Hawke defends his program as being more long-term oriented. "The important point," he says, "is that it will provide a significant number of lasting jobs."