Aussie plans facing opposition

Initial cheer about the fall in the rate of inflation goes quiet as flaws are soon found in the Government's official statistics.

By Greg Ansley

CANBERRA - The news of a fall in Australia's rate of inflation in the March quarter was tarnished yesterday by signs that the figures could be turned against key Government policies - including its embattled GST proposal.

While the 0.1 per cent dip in the all groups consumer price index for the quarter, and a 12-month rise of 1.2 per cent, were used by Treasurer Peter Costello to bolster the Government's credentials, there were potholes in the detail. Food prices rose by 1.2 per cent during the quarter, and by 4.4 per cent in the 12 months to the end of March.

A significant part of the overall decline in the CPI also came from a one-off boost from a new 30 per cent rebate for private health insurance, introduced in a bid to ease mounting pressure on the Medicare universal health care system. Both are sensitive areas for the Government.

Food is the major stumbling block for the proposed GST, and the increase in prices will fuel determination by the Democrats to allow the passage of the new tax only with the exemption of food. The Democrats yesterday repeated their threat to reject a GST completely unless such basic foods as fruit and vegetables are excluded.

Yesterday's figures will also reinforce concern by opposition parties and Independent Senator Brian Harradine to fully test the equity and compensation provisions of the tax reform provision.

There is further concern that if the impact of the private health care rebate was removed, the cost of living for people without health insurance rose by about 0.5 per cent for the quarter, and by 1.6 per cent for the year.

But Mr Costello said with an underlying rate of 0.6 per cent for the quarter and 1.7 per cent for the preceding 12 months, Australian inflation was significantly below the OECD average at a time when economic growth was amongst the strongest in the developed world.

Mr Costello said strong growth in productivity and moderate wage outcomes were helping to limit increases in production costs and, with competitive pressures in the economy, were restraining growth in consumer prices.

While the price of imported goods across the docks rose by about 3 per cent in the year to the end of March, the retail price of imported items fell by 0.4 per cent in the quarter and 2 per cent in the 12 months. "This is a reflection of the success of labour and product market reforms in creating a dynamic, efficient and competitive economy," Mr Costello said.

* New Zealand's yield curved steepened in a knee-jerk response to the higher than expected underlying inflation rate in Australia. Ten year bonds rose five points to 5.65 per cent.