Early 1990s recession in Australia
[2] In the 1980s, Singapore Prime Minister Lee Kuan Yew famously predicted that Australia was at risk of becoming the "white trash of Asia" due to high unemployment, inflationary pressures, and government debt.
The Hawke-Keating government shifted the Labor Party from its traditional allegiance to economic protectionism, moved to deregulate Australia's finance industry, and restructured the role of trade unions.
[5] Ian Macfarlane, Governor of the Reserve Bank from 1996 to 2006, has said that the financial excesses of the 1980s were of such a scale that they made the 1990s recession "inevitable", describing Australia's economy at the end of the 1980s as overstretched and vulnerable to contractionary shock.
[2] The debate as to the causes or extent to which international factors and domestic government policy contributed to the severity of the 1990s recession in Australia continues.
Speaking in 2006, former Reserve bank Governor Ian Macfarlane said:[2] The emphasis on interest rates and deregulation at least reminds us that what we are dealing with is essentially a financial event.
The Business Council called for wage reductions, decreased government expenditure, a lower dollar, and deregulation of the labour market.
Furthermore, the collapse of the Eastern Bloc economies was to see wool and wheat prices decline, savaging Australia's agricultural sector.
[1] Treasurer Paul Keating budgeted a record $9.1 billion surplus for 1989–90, and Labor won the 1990 election, aided by the support of environmentalists.
David Barnett wrote in 1997 that Labor fiscal policy at this time was "self-defeating as "with one hand it was imposing a monetary squeeze, while on the other it was encouraging spending with wage increases and tax cuts".
[6] Initially, the Treasurer had insisted Australia would face a "soft landing", but after receiving the September quarter accounts indicating a large contraction of 1.6 per cent, he adopted a different political strategy, instead arguing that the downturn was a necessary correction by opening a press conference in November as follows:[7][8][9] The first thing to say is, the accounts do show that Australia is in a recession.
[2] The popularity of Hawke's prime ministership, along with the health of the Hawke-Keating political partnership deteriorated along with the Australian economy and Keating began to position himself for a challenge.
The Liberal-National Coalition, led by Jeff Kennett was swept into office in a 1992 landslide victory and commenced a wide-ranging program of expenditure cuts, privatisation of public assets, and economic reform to reduce government debt and rejuvenate the economy.
[13] West Australian high flying businessman Alan Bond was declared bankrupt in 1992 and jailed in 1997 for corporate fraud.
He said the Hawke-Keating government had increased the severity of the recession by initially encouraging the economy to boom post-stock crash as elections were approaching, which necessitated higher interest rates and tighter monetary policy than would otherwise have been necessary.
The new treasurer, John Kerin and Deputy Prime Minister Brian Howe blamed Keating's 1990 economic policy for the poor state of the Australian economy.
[17] By 1992, shortly after Hawke lost office and was replaced as leader of the Labor Party and as prime minister by his former deputy Paul Keating, unemployment had reached 11 percent, the highest level in Australia since the Great Depression of the 1930s.
With an ever-rising deficit, however, Keating was unable to deliver the tax cuts promised prior to the election and sought to reduce expenditure.
Speaking in 2006, former Reserve Bank Governor Ian Macfarlane said that a beneficial legacy of the 1990s recession was a lasting reduction in inflation.
It reduced government expenditure, prioritised a return to Budget surplus, and instigated anti-union industrial relations reforms.
