ben moretti on 23 Mar 2001 05:50:59 -0000

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[Nettime-bold] Hold your nerve, PM told

<sarcasm>it really is great to see the imf encouraging governments to be responsive
to the electorate's needs</sarcasm>

Hold your nerve, PM told  

Friday 23 March 2001

The International Monetary Fund has urged Australia to push on with more economic
reforms, including abolition of all tariff protection of industry, reducing
the award system to a simple safety net, slashing the top tax rate and "substantially"
increasing work tests on the unemployed.

In its annual report on Australia, the IMF praises the Howard Government's economic
management, but advises that "there is no room for complacency" and says the
pace of reform should be stepped up.

The report offers buoyant economic forecasts, apparently prepared in December
but now overtaken by events. It says Australia's medium-term growth prospects
appear sound unless the world economy turns down.

At a time when opponents of economic reform have gained the upper hand politically,
the IMF report is a mixed blessing for the government. While it uncritically
applauds Australia's management, it simultaneously urges the government to move
faster in directions in which the electorate is resisting any movement at all.

The hottest potato in the IMF staff report is its proposal that the government
end the indexation of pensions and welfare benefits to average weekly earnings
and let pensions fall relative to workers' incomes.

Warning against "an excessively softly-softly approach" to welfare reform, the
IMF argues: "Key to balancing the various, potentially conflicting objectives
is to take early action to delink pension and disability payments from wage
growth, while substantially increasing participation requirements for welfare

But the report recounts resistance to this from "authorities". Among those who
spoke with IMF representatives were Treasurer Peter Costello, Treasury secretary
Ted Evans and Reserve Bank governor Ian Macfarlane.

"The authorities ... stressed that in light of the high value placed on social
cohesion in Australia, the country would be willing to pay some price to ensure
a strong safety net for the poor and the disadvantaged, and saw little scope
for a radical approach to cutting welfare benefits or eligibility", the report

Similarly, when the IMF mission urged that tax cuts focus on reducing the top
47 per cent marginal tax rate, and raising the $60,000 threshold at which it
cuts in, saying high tax rates could increase the brain drain from Australia,
the report says the authorities took the point "but also noted the importance
of balancing equity with efficiency considerations".

But the report records no such resistance to its other proposals, which include:

Removing all tariff protection of industry.

Scrapping the present goal of balanced budgets over the business cycle in favor
of modest surpluses, to be invested to meet the future health bills of an ageing

Reintroducing legislation to strip back industrial awards and remove protection
for employees of small business from unfair dismissal.

"While the reforms of the past 15 years will continue to bring dividends, the
reform effort must be sustained if Australia is to retain its place amongst
the leaders in productivity growth", it concludes.

Releasing the report, Mr Costello highlighted the IMF's praise while ignoring
its reform agenda. He said its assessment "underscores the need for sound economic
management amid uncertain economic developments". 

ben moretti

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