Loans: No Relief Before The Poll

Labor is set to face the electorate with home loan interest rates stuck at 17 per cent, despite claims by the Treasurer, Mr Keating, that falling demand would allow another cut in short-term interest rates.

Mr Keating admitted yesterday it was a matter of "some doubt" whether home loan rates would fall before the March 24 poll, but supported forecasts of a 1 percentage point fall in home loan rates by June.

His comments on housing rates came as the Government attempted to discredit the Opposition's latest spending promises on roads, beach pollution and the sale of a second mobile phone licence.

Mr Keating also attacked Opposition claims that productivity had been zero under the wage accord, releasing copies of an OECD letter "regretting" an error it had made in underestimating Australia's productivity growth.

Asked if there was room for a further easing in interest rates, Mr Keating said: "The answer is yes if we believe demand conditions are abating sufficiently. At the moment, it would seem they are."

He claimed a fall in home loan rates would occur as the banks' cost of deposits fell, but said the Government would not be discussing any further easing with the Reserve Bank before the election.

"The Government will not be engaging the central bank in any discussion of monetary policy for the balance of the campaign in relation to easing," he said.

Mr Keating referred approvingly to a report by the housing industry forecasting group BIS-Shrapnel that home loan rates were set to fall to 16 per cent, describing it as "the view of a respected commentator".

Speaking to a business lunch sponsored by the Australian Financial Review, the Treasurer claimed the Coalition would rip away the social wage and the wage system that have been binding the profit consensus.

This he asserted would lower growth and diminish living standards and lead to unemployment approaching double figures.

"The fact of the matter is that with such a vacuous, empty person in charge of national policy, the place would just sink and the foreign exchange market would beat us to a pulp, because when you've got a $130 odd billion of gross debt, sins are not forgiven. They might be forgiven at $5 billion, they are not forgiven at $130 billion," Mr Keating said.

Mr Keating's admission that home loan interest rate falls are unlikely before the election means the Government will now have to go to the March 24 poll on the promise of lower home interest rates only.

This makes it imperative for Mr Keating to convince voters that further falls in short term rates are inevitable and that this will flow through to housing rates. This explains Mr Keating's bullish statements yesterday.

In its letter, the OECD said it regretted its error in calculating a productivity gain of only 1.1 per cent instead of an average annual rate of 2.7 per cent for the period 1979 to 1987.

The level of productivity increases has become a key election issue, with the Opposition claiming the Accord may have kept wages down but it had not lifted productivity and competitiveness.

The Opposition Leader, Mr Peacock, suggested yesterday that the OECD figures were not to be trusted because the organisation tended to base its figures on what the Government gave it.

The shadow treasurer, Dr Hewson, said the figures used were out of date, and September quarter data from the ABS national accounts series showed that labour productivity in fact peaked in the March quarter of 1989.

"If productivity was booming along, how come we've got such a monumental current account and debt problem?" Dr Hewson asked.

He said that the key point at issue was that Australia needed about 3.5 to 4 per cent sustained improvement in productivity to stabilise debt "and we aren't seeing numbers anywhere near that order of magnitude whichever base you pick and over what number of years".