Australia's 'razor gang' suddenly opts for economic pump priming
The government of Prime Minister Malcolm Fraser has drastically turned around its economic strategy.
The 1982-83 budget, unveiled August 17, includes major tax cuts, large doses of public spending, and a projected $1.8 billion deficit.
With a record 6.9 percent of the work force unemployed, projections of 8 percent next year, and parliamentary elections only 16 months away, the budget apparently indicates a decision by the government to switch to Keynesian ''pump priming'' tactics.
Until now, the ruling Liberal-Country coalition has always stressed budget-cutting and controlling monetary growth. It modeled its economic policies after those of Margaret Thatcher, earning Mr. Fraser's team a nickname, ''the razor gang.'' But the new budget, sporting a deficit three times the size of last year's $600 million total, marks a clear departure from past Fraser policies.
The budget package includes $1.5 billion in personal tax cuts, along with increased welfare spending, family allowances, and mortgage relief. It also contains new tax credits for the construction and mining industries, two of the hardest-hit victims of the current recession. While some of these new expenditures will add to the deficit, the government plans to finance the rest by raising sales taxes and clamping down on ''tax avoiders.''
Defending the budget, Treasurer John Howard argues that world economic conditions, as well as Australia's deep recession, have made the shift in policy necessary.
Mr. Howard did not say how the government plans to keep its new deficit-spending policies from further fueling inflation, currently at 10 percent. Howard did indicated the government will likely depend on a stricter wages policy to hold down prices. For example, Mr. Fraser wrote to 2,000 leading companies on Aug. 12, asking them to freeze executive salaries as a sign of cooperation.
Most Australian economists agree that wage increases, which have reached an annual average of 17 percent in 1982, will have to be brought down. Happily, while the new deficit could boost consumer spending, it may also placate the powerful Australian Council of Trade Unions, which has promised wage restraint if the budget proved to its liking.
In fact, critics of the government have charged that the new budget reflects political needs more than economic reality. Mr. Fraser has certainly taken the wind from the sails of the opposition Labor Party; his new budget deficit will be even larger than the $1.5 billion recently called for by Labor leader Bill Hayden. And the government has committed itself to a new policy stance that seems to respond decisively to the economic crisis.
Until a few weeks ago, political insiders felt Mr. Fraser might call early elections, while Labor was in a period of internal party turmoil and before the economy worsened further. Now the insiders are less sure. The government may want time to promote its new economic strategy. Besides, Labor has remained strong in the polls, despite recent infighting about who should lead the party, whether Australia should export uranium, and whether US nuclear-powered vessels should be allowed into Australian ports.
In fact, some Liberal strategists have reportedly become convinced that the government would lose any election held before next year. Some observers remain less certain. New South Wales Premier Neville Wran, a leading Labor figure, still reportedly believes there will be elections this fall.
Whether voters go to the polls or not will probably depend on Australia's economic performance in the next few months, as well as on public reaction to the new budget.