i would like to return to four of these again today. strong frameworks for policy the first is the importance of strong, credible frameworks for economic policy. for monetary policy, this means a strong nominal anchor in the form of a medium - term inflation target. and for fiscal policy, it means a credible fiscal framework that deals with the medium term and the intertemporal budget constraint. since the early 1990s, australia has been well served by a flexible inflation target centred on 2 to 3 per cent. this target has successfully anchored inflation expectations and provided the organising framework for monetary policy decisions. we have seen the benefits of this anchor over the past year or so ; without it, we would have faced a much more challenging environment. at one point during my term, when inflation was low, there were calls to lower the target. and recently, some have called for a higher target, hoping to avoid the costs of disinflation. i have consistently argued against such calls. it wouldn't be much of a nominal anchor if the target was moved just because the tide was running in one direction for a while. people would rightly wonder what would happen when the tide ran the other way. having chosen a target, it is best to keep with it unless there is a compelling case for change, which there is not. for fiscal policy, an anchor is also important. governments face many demands on their budgets and when they borrow today, they need to be able to service that debt into the future. some countries have not dealt with this intertemporal aspect of fiscal policy very well and public debt levels have kept rising, storing up problems for the future. australia has done better on this front, but we are not immune to the pressures on the public purse and these pressures are growing. given this, a strong commitment to a fiscal framework that addressed the intertemporal budget constraint would help. a credible medium - term framework is also useful in the area of infrastructure investment. australia's growing population means that we need to keep investing in public assets. some years ago, i spoke about my concerns that we were not doing 3 / 7 bis - central bankers'speeches enough here, partly due to governments seeking to avoid taking on debt. more recently, my concern has been that we were seeking to do too much, in too short a time. a wellestablished framework, based on rigorous independent cost - benefit analysis, would help the country plan and sequence public investment. it would

, i was surprised and disappointed to learn what the national accounts had to say about our growth performance in the second half of 2000. the grounds for optimism about our growth prospects, which were shared by most private sector forecasters, have been spelled out on a number of occasions, but let me recap briefly : • the australian economy had strong momentum — it had been growing at about 4½ per cent for a number of years, yet it had not built up any of the imbalances that are common late in an expansion ; • inflation, although rising slightly, was moderate, as was the growth of wages ; • asset prices, although on a rising trend, were not obviously overheated and the balance sheets of the corporate and financial sectors were in good shape ; • a similar situation applied to physical investment, which meant the risk of excess capacity developing was minimal ; • the current account of the balance of payments was being reduced under the influence of rapid export growth ; • the fiscal impact of the various tax measures associated with the introduction of the gst was expansionary by all the conventional measures ; and • although monetary policy had been tightened, the level of real interest rates was not high by historical standards, credit was easily available, and the exchange rate had fallen to a point where it was very competitive. of course, there were some worrying signs, but they seemed less significant than the factors listed above. households in particular had taken on a lot of debt by their past standards, though not by international standards ; they were also having to cope with higher oil prices. there were a few rumblings from falls in the us share market which had been going on since march 2000 but, other than that, the mood in the united states was still confident. business surveys showed substantial falls in confidence in the second half of 2000, just as they had in 1998, and employment fell for a time, but these things were consistent with a slowdown, not a contraction. there was also the inevitable uncertainty surrounding the gst and the sydney olympics. what happened and why? so the question is : why was there such a sudden reversal in the second half of the year, particularly the december quarter? economies as well balanced as the australian economy was at mid - 2000 do not just run out of steam : there has to be a reason, or perhaps several reasons. i think it is now generally recognised that there was one overwhelming reason for the change in direction. the feature of the national accounts that leaps out is