Slack labour markets, an appreciating currency that with moderate US inflation produces another year of little change to import prices, and an assumed neutral influence on prices from payroll taxes and indirect taxes, keeps inflation off the front, and business pages. We expect the CPI to grow by about 1.5 per cent. Growth of labour compensation rates accelerates to almost 2.5 per cent to finally yield some real wage gains, but improved growth of output per employee keeps increases in unit labour costs basically unchanged from 1996 - in the one per cent range. Nevertheless, we expect nominal profits will recover their apparent losses of 1996. Overall, government balances should improve in 1997.
Provincial balances continue to improve, but slowly.
Assuming there are no major changes to the public pension systems, they should continue to register modest deficits. Taking all levels of government together, we expect the change in the primary surplus will increase to indicate an even tighter fiscal thrust for the year. After 1997 We assume that deficit reduction will remain the principal focus of Finance ministers and Treasurers to at least the end of the decade. Primary surpluses continue at high levels throughout the projection. In that context, we assume governments will judge that the re-making of the public sector has been completed after 1998.