Pre-GST binge still looming

THE pre-GST spending spree is far from over, says Hartley Poynton CEO Tim Moore.

“Pre-GST there is going to be a personal spending binge,” Mr Moore said.

According to ANZ Bank chief economist Saul Eslake, this will in turn create inflationary pressures – giving reason to increase interest rates yet again.

“Inflationary expectations are the highest they have been since June 1991. The GST will cause an initial sharp spike in inflation,” Mr Eslake said.

Both were speaking at the recent Committee for Economic Development of Australia 2000 Overview.

The fear among economists and traders alike is that there will be a push for higher wages to compensate for the GST when workers would, in fact, have more disposable income because of tax cuts.

Mr Eslake said demands for compensatory wage claims, if successful, could prompt the Reserve Bank to raise interest rates more than expected.

Chamber of Commerce chief economist Dan Engles, speaking at the Chamber of Commerce Outlook 2000 conference, said the second round effect could lift interest rates to 9 per cent or even 10 per cent.

Mr Eslake believes Australia and the world economy will be in a major upswing that will continue until at least 2001.

He said most forecasters had failed to recognise the effects of new technology, globalisation and emerging markets on the world economy.

“Japan has begun to recover from a very long slump,” Mr Eslake said.

“Fiscal stimulus, bank bailouts and zero interest rates have helped kick-start the economy.

“However, the Japanese economy is still very dependent on the Japanese Government.”

Mr Eslake said commodity prices were also looking up but only in nickel, copper, aluminium, and zinc.

He said a number of things could still bring the economy unstuck.

The most obvious was a share market crash in the US.

However, Mr Moore said a correction of between 10 and 20 per cent rather than a crash was likely in the coming year.”