Mr McARTHUR (5:45 PM) —I thank the Minister for Financial Services and Regulation at the table for his assistance and his words of encouragement. Appropriation Bill (No. 3) 1998-99—which we are debating cognately with two other appropriation bills—talks about the state of the economy. As the minister at the table has suggested, the Labor Party should support our tax bill in the Senate. That has been the thrust of the government's position during the campaign and obviously during the current debate in this place and in the Senate.

I want to bring to the attention of the House, and all Australians, the wonderful state of play that now exists in the Australian economy, and the background reasons as to why Australia is performing so well when other nations around the world, especially in our region, are suffering economic difficulty.

Australia has performed well in my assessment because its policy settings are based on a market economy and, to use that set of words that is sometimes frowned upon, on rational economics. That means the economy is based on a demand driven approach. It is based on an understanding of democratic principles. It is a market economy where supply and demand is handled without too much government interference. People have a choice of the goods and services that they wish to buy and, under this government, there has been an improvement in private sector efficiency.

Free markets distribute goods and services to people in a more efficient way. The world has come to the view that the command economies of the communist countries—their system—do not work. We see a situation here in our region where Australia has performed remarkably well. In other nations in the South-East Asian area, such as Japan and Thailand, a dominant position has been taken by the policy makers and the governments that have directed the way in which the policy should go. Also, a few of the ruling elite had a vested interest, particularly in Japan where the banks borrowed against the share market. Their equity has fallen away to negligible levels so much that the banking sector in some of the South-East Asian countries is very much under threat.

We had a situation in Japan where big governments and big trade union movements were setting the wages and conditions and the market was not able to make proper judgments. We now have a position, which should have affected Australia, where Japan, technically, is moving into a depression and its central bank is looking for extra credit to maintain its position in the world.

The situation in Australia is that the government, the Prime Minister and the Treasurer have brought about a policy setting to balance the budget. That is not an easy situation, as the minister at the table would understand. Politically it is always difficult because of the people out in the community who receive money, receive pensions, from governments. There are the interest groups who always suggest that a balanced budget is not a good thing. This policy in turn has brought about a lower interest rate regime and low inflation. Those things are taken for granted under a Liberal coalition government, but there has not been too much comment by the electorate or by the commentators that these very important factors have been reached.

The floating exchange rate, which I concede the Hawke-Keating government brought in in 1983, has meant that there has been a genuine movement of the exchange of Australia relative to the rest of the world so that the change in trading conditions was taken into account.

The change in the taxation system that is proposed will ensure that hardworking Australians will receive $13 billion worth of tax cuts, and that 80 per cent of Australian income earners will pay no more than the 30 cents in the dollar tax rate. That is a very clear proposition that has provided incentive and confidence to most hardworking Australians. In my own industry, the rural industry, I constantly see hardworking shearers giving up work on a Friday because their tax rate, in their assessment, is too high. Mr Deputy Speaker, you would be aware of that from your own experience. I think that is a very clear example of tax rates penalising incentive.

We have this situation with the exchange rates where a more flexible position has been reached in Australia and where the Reserve Bank did not support the exchange rate by artificial means. The Australian dollar bought US80c in early 1997 and got down to as low as something like US56c. Today it stands at US64.5c. That gives a clear indication of the flexibility by which the government and the Reserve Bank have been able to ensure that, by sensible policy settings, Australia has been able to insulate itself against some of the difficulties of the world slowdown, particularly in Asia.

The floating exchange rate has helped out exporters who have not been enjoying profitable times in recent months. But at least the lower US dollar exchange rate ensured that their competitive position was helped. It is interesting to note the comments of Paul Krugman of the Massachusetts Institute of Technology writing in Fortune on 21 December 1998. This quote has been used by other speakers on this side of the House but I think it sets in context the position of Australia in the world economic climate. He said:

Although most of its exports go either to Japan or the stricken Tigers, Australia has weathered the storm . . . instead of raising interest rates to defend the Aussie dollar—which would have slowed the Aussie economy—the central bank allowed the currency to slide from almost 80 cents in early 1997 to the low 60s by mid-1998. The result was that while export prices plunged in US dollars, they held in local currency and strong domestic demand kept the economy humming.

That is a very interesting comment by a respected commentator in the Fortune magazine, which is read by most informed economists in America. Krugman went on to note that financial markets viewed the decline in the dollar as a buying opportunity which led to the stabilisation of the currency.

As I was saying, the floating exchange rate mechanism ensures that there is a better price for our commodities such as the wool industry which is suffering a very low price at the moment. But if the exchange rate was against that industry, the wheat industry or the coal industry, just imagine how difficult our commodity prices might have been.

In the case of the Australian banks, unlike some of the other banking institutions around the world, the Australian banks obviously had difficulties in the early 1980s, partly because they did not follow the usual conservative practices. But Australian banks did not fall over, as some banks throughout the Asian region have. We have just seen that Bob Joss has left Westpac in profit. That particular bank, because of its questionable lending practices and the write-off of a number of bad debts, was in a difficult position. It is fair to say that the Australian banking system was prudentially secure and that the Australian people had confidence in it. Under Treasurer Costello and the Howard government, the Australian banking system is very sound, in good heart and has a very strong prudential protection for investors.

The other important factor of Australia's economy being in good heart and being as strong as it is now is the labour market reforms that have been debated in this House on many occasions. We are now starting to see the effect of a change of attitude to labour market reforms and productivity gains in the mining industry and in the manufacturing sector because the work force now has a greater pride in their operations. They have a responsibility for the job in hand and there has been a change by management towards the way in which the work force is being directed and organised. That in itself has ensured genuine productivity gains in Australia where there have been real increases in wages, control of inflation and workers have had more spending power; unlike the heady days of 11 per cent inflation where workers had illusory gains under award conditions but, in fact, their ability to improve their standard of living was very much reduced.

Turning to the balanced budget again, Treasurer Costello and the Howard government have ensured over a three-year period that the budgets are moving back into balance. Despite the $10 billion black hole, which all Australians are familiar with, by next year the federal budget will be in balance. This compares very favourably with the former position in my home state of Victoria where the Cain-Kirner Labor government managed to get that state in a position of bankruptcy, where the state budget was unable to pay their cash payments on a day by day, week by week basis. That was a very lamentable position—that a Labor government in such a short term of office could have turned around a state which basically had a sound financial position to one of total bankruptcy—as was the Labor government in South Australia with the collapse of the State Bank of South Australian.

There has been some debate across the board about balancing the budget both here and in America. Even President Clinton has been moving towards balancing the huge US budget. We now have a position in Australia where the federal budget will be balanced and where state budgets are now moving towards a position of balance. That ensures that the taxpayers' dollars are not servicing debt and that there are improved credit ratings which allow those borrowings to be borrowed at a lesser rate, which has a major impact. I notice the movement in Victoria, hopefully, to a AAA Moody's rating which will ensure that the Kennett government can enjoy better interest rates. The Minister for Financial Services and Regulation at the table is very familiar with this set of financial circumstances. That also helps with interest rates—that is fundamental—and the lowering of inflation rates in Australia.

The challenge for the government and for Australia is the balance of payments. It is a matter of concern that the growing economy, by all factors, has ensured that the three per cent growth rate or whatever it might eventually work out to be—much better than people anticipated—has put pressure on the balance of payments because Australian consumers wish to import goods. The prices our commodities fetch are obviously lower. So the balance of payments is not as good as it might be. However, there are some very encouraging signs that exporters are looking for new markets.

In my own electorate of Corangamite I have the honour to chair an export group, the Geelong Export Network. That group has encouraged local manufacturers and businessmen to look at export market opportunities outside Australia. It has been remarkable the number of opportunities and success stories that have been identified by people who were just looking at export opportunities to improve their business performance, who were able to achieve a niche market in Asia, India and South Africa and were able to export some of their product, overcome the difficulties of language, currency and ensuring payment, all those difficulties which seem insurmountable for exporters who have never before been in export.

That little group, along with Austrade, has been helpful in ensuring that exports improve. We make a dent in that balance of payments problem, so that in the longer run Australia will trade on the right side of the ledger. Obviously the Howard-Costello monetary and financial policy is to encourage Australia to become a more efficient economy so that Australian products become world competitive and we can sell our products in terms of quality and price to the world. The tariff regimes have been reduced and, while those decisions have been difficult in certain parts of Australia, in the TCF industries and in the car industries I am delighted to say that the downward trend of the tariff barriers has had a major impact on attitudes and on the ability of the car industry and the TCF industries to improve their manufacturing process and their efficiency. Also in the farming area, in wheat cropping and in my own area of Corangamite, changes in technology are now looking at productivity improvements that are really quite remarkable.

Again, I note the change in other countries—in particular, Germany and in the European Union—where there is a tendency to move the other way. A council of ministers rules those 350 million people by dictate and by direction. The genuine free enterprise ethic that is so evident in this country and in America is starting to be lost in some of the attitudes that are clearly evident in Europe. In particular, in Germany we are seeing a movement away from that powerhouse of free enterprise to the lowering of working hours, abolition of nuclear power and some of those fundamentals that created prosperity in that nation—some of the arguments that we have had in this nation.

Australia has taken the hard decisions to bring about a better economy in a situation where most commentators would have thought Australia would be in difficulty. We have reduced the deficit and we have made an attack on unemployment, which is now at 7.5 per cent, the lowest for many years. That we are gradually reducing the number of Australians unemployed is a remarkable achievement—the lowest since 1990 and the lowest youth unemployment since 1989.

Australians are increasingly participating in the share market—something unheard of five, six or seven years ago. Average Australians are participating in the Telstra float and did participate in the sale of the Commonwealth Bank, which the former government sold. That has encouraged average Australians to become small capitalists, to understand the share market and to understand that their wealth and productivity is connected to the outcome of their superannuation and their investment in the share market.

I might sound a note of caution about the exuberance of Wall Street and the position of the Australian share market. I observe that share markets do go up and do come down. The investors of Australia need to be somewhat careful about the good times and be aware that the high value of the share market will not always continue, but I think they can be assured that, over time, the share market will continue a steady rise if it reflects the productivity and the wealth of Australia.

The freer markets that have been introduced by this government, the lower interest rates, the low inflation and tax reform have ensured that Australia is moving in the right direction. These are fundamental reforms that have been put in place against considerable opposition by the conservative, backward looking opposition, who are not prepared to make the change, who proposed in the earlier part of their time in government a GST and yet who sit here in this chamber and in the Senate saying they are against it.

The Australian economy, encouraged by this government, has based its whole operation on choice—that consumers, manufacturers and workers have a choice, that we have a free market position and that governments are moving out of people's lives in the way things are regulated. The activities of the National Competition Council under Graeme Samuel have ensured that monopolies are being challenged and that resources are being allocated to those areas that can be more productive and more profitable.

I commend the government's policy position. I commend the outcomes reflected in the current set of figures. They are probably the best for 30 years. They are not artificial. These fundamentals and the way in which the Australian economy is working will ensure that there is a good sound future. Obviously we cannot be sure what international shocks might hit us, such as a change in the oil price and other problems with commodity prices on world stock markets, but at least the sensible, well thought out, rational economic policy settings of the present government have given Australia a very sound future in a turbulent world, especially that of our near neighbours.