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Wednesday, 17 April 1985
Page: 1115

Senator HILL(10.43) —I, like those who preceded me in this Address-in-Reply debate, take this opportunity to welcome new senators to the chamber and to congratulate them on their maiden speeches. I particularly congratulate Senator Devlin, who has just preceded me. It is obvious that he will bring to the Australian Labor Party a practical experience of the real world which will be of benefit to that Party.

I wish to speak in relation to that part of the Governor-General's Speech which deals with the Government's economic program, or what could be said to be the Government's lack of an economic program. I do so because, although it is obvious that a number of other subjects raised in the Speech deserve consideration in this chamber, I am deeply concerned at the moment at the superficial nature of the economic recovery in Australia. I am concerned that we as a nation continue to slip down the international prosperity table. It appears that under this Government the rate of this slide has accelerated. I am concerned that this Government's policies will not facilitate the ongoing and strengthening recovery which will be necessary for the prosperity slide to be reversed.

What is noticeably missing from the Governor-General's Speech is any genuine attempt by the Government to acknowledge and identify the soft areas of our economic recovery to date. The Government has used the Governor-General's Speech to wallpaper over economic issues which need to be addressed in 1985. The Government-more particularly the Prime Minister (Mr Hawke)-is taking consensus to its predictable but absurd conclusion. Rather than decisions being made according to the national interest, Australia is, to my mind, drifting towards a leadership style and substance which seek at any cost to avoid offending any sectional community interest, particularly any ALP interest.

This propensity to avoid difficult decisions is no more apparent than in the deepening quagmire in which the Government is now finding itself in regard to taxation reform. As each day passes, the Prime Minister's agenda for tax reform appears to be collapsing. Individual Ministers, Labour faction spokesmen and the Australian Council of Trade Unions are all presenting their own sets of tax reform proposals with implicit-and in some cases explicit-warnings that implementation of the Government's preferred reform options would result in repercussions. The result, we hear from the Prime Minister, is that no taxation reform will be implemented unless such reforms are popular. This is his definition of consensus government. But I submit to the Senate that that attitude makes a farce of government responsibility and the leadership of this nation which is so desperately needed.

Furthermore, this 1985 version of consensus politics is now being manifested in the Government's approach to the broader issues of economic management and Australia's longer term economic prospects, although there does appear to be a subtle difference from the consensus process which the Prime Minister gave us two years ago. In 1983 consensus was presented as the true path to economic recovery following what we accept was a severe recession in 1981 and 1982. In 1985 the Government has turned that approach around by wishing us to believe that, as we have experienced an economic recovery, little further needs to be done to keep the economy on a steady growth path. By avoiding the economic problems we face in moving the economy beyond the recovery phase, the Government hopes to maintain a consensus based on false contentment. Such contentment, I suggest, may well be short-lived. The key economic challenge that Australia now faces is whether policies are in place to convert the economic recovery of the past 18 months into a sustained rate of economic growth.

In reviewing Australia's economic progress since 1983, due recognition should be given to a number of contributing factors. I mention again, as have others before me, that the world economic recovery which is being led by the United States has provided a powerful engine for economic recovery in this country. The breaking of the drought in Australia in 1983 brought a dramatic surge in farm incomes, bumping up Australia's gross domestic product growth to 6 per cent in 1983-84. I mention again the previous Government's wages pause initiative. It put the brake on the wages growth explosion of 1981, thereby restoring profit levels in the private sector. The prices and incomes accord, I accept, has contributed to wage restraint and industrial peace during the recovery phase. Inflation has declined to a level that is now only marginally above the Organisation for Economic Co-operation and Development average-although it should be stated, as I have just stated, that it is still above that average. Furthermore unemployment has declined, although it remains unacceptably high.

We on this side of the Senate are fully prepared to acknowledge and applaud those Government policies which have been responsible for helping to achieve economic recovery. Decisions in regard to floating the dollar and financial deregulations are deserving of support, as both initiatives add a welcome flexibility to the Australian economy. The Opposition does not hesitate to support these moves towards deregulation. We merely note in passing the dramatic conversion to deregulation which has been undergone by the Treasurer (Mr Keating) since the days of his vehement denunciation of the Campbell Committee of Inquiry into the Australian Financial System report which was introduced in 1981. However, as has been said before, the Government cannot lay claim to having brought about the recovery in the United States of America, the breaking of the drought or the beneficial effects that have flowed from the wages pause.

While acknowledging that the recovery is well under way there are still too many weak points to conclude that all the good work has been done and now it is merely a matter of going full steam ahead. In fact, I submit that there are indications that the recovery could be easily aborted and chances for sustained economic growth may prove merely illusory. What may be correct policies for a recovery phase may not necessarily be appropriate policies for maintaining the economic momentum beyond such a recovery stage. The danger signs are there and they should be acknowledged by this Government.

Firstly, as I mentioned before, whilst the unemployment rate has declined below 9 per cent, unemployment growth has slowed down and has now nearly halted. Since June 1984 seasonally adjusted employment growth has been 0.7 per cent or only 1.4 per cent on an adjusted annual basis. Whilst the earlier strong employment growth has helped to recover lost ground from the recession, clearly the present slow down threatens economic momentum beyond recovery. Secondly, the gross domestic product growth rate should be looked at in a longer term perspective. Gross non-farm product increased by 3.8 per cent in 1983-84 and while this is certainly better than the 1.8 per cent growth rate of 1981-82 it is still well below the highest of the fairly dismal growth rates recorded over the past decade. As the Confederation of Australian Industry pointed out-it is worth reminding the Senate-growth figures indicate a recovery in almost a literal sense, that is, a recovery of ground lost and a return simply towards levels of production achieved prior to the 1982 downturn. I would have thought it was obvious that we need better growth rates if we hope to see employment fall below 8 per cent.

Thirdly, dwelling construction activity is now levelling out, following an 8.5 per cent increase in 1983-84. Whilst last year's figure is well above the average experienced in recent times honourable senators should remember that the resurgence comes from a base which was one of the worst in recent memory. Fourthly, real private investment in aggregate has also returned only about the average level that prevailed from 1969-70 to 1977-78. Clearly, there is a real need to encourage further investment. It is obvious that further recovery will depend on the private sector making adequate profits for it to undertake investment and provide jobs. Any feeling of a warm inner glow that the Government wishes to engender should be tempered by the knowledge that as of September 1984 the level of private sector production was still below the level attained in June 1982, with the level of consumer demand only 3.4 per cent above its level at that time.

Therefore, as I have indicated, private sector activity is returning only to a level which it has shown it is already capable of achieving. Much more is necessary. Whether Australia will be able to go beyond the recovery stage hinges greatly on future wage and on-cost movements. Whilst it may be argued that the prices and incomes accord-I am prepared to accept this to some extent-has served an important stabilising role in the early stages of the recovery, it is also clear that wage indexation guaranteed under the accord constitutes a threat to Australia's longer term economic prospects. The previous two wage indexation decisions have contributed to earning growth which is only now becoming fully appreciated as evidence is coming to light of wage drift outside full indexation. The business sector has not recovered sufficiently to withstand these pressures.

I remind the Senate that in June 1984 average earnings in Australia were at their highest level ever. Employers have just now received the burden of a further indexation adjustment and are looking to the prospect of additional labour cost increases-either direct or on-cost-flowing from the expected national productivity hearings later this year. The Government's continued support for full indexation will have a further ramification beyond the flow through of increased labour costs and the effects that they have on profit levels.

I remind the Senate that February saw the seventh successive monthly trade deficit and for this financial year Australia could well be looking at a trade deficit of $1.5 billion. At the same time we are facing a deficit in the balance of payments on current account which looks as though it will be between $9 billion and $11 billion. Such a current account deficit, if achieved, will be the highest recorded in Australia's peacetime history. It will certainly be much higher than that which was recorded under the Fraser Government and which was so loudly condemned by the Hawke Government only a short time ago. In the short term the current account deficit will be financed by continued capital inflow which will, among other things, contribute to continued levels of high interest rates. In the December 1984 quarter real interest rates in Australia were 8 per cent. I also remind the Senate that this figure was considerably higher than even the peak in real interest rates which was reached when the Fraser Government was in office, the peak being 6.2 per cent. In the final year of the Fraser Government the average interest rate was 5 per cent. Again under this Government what is being experienced is high interest rates in real terms and these will inevitably flow over into domestic interest rates. We have already seen signs of this in the last week or so when the domestic interest rates of banks and building societies rose. This in turn will fuel inflation.

The downturn in the Australian dollar is a clear reflection of the concern held by the international financial community that the current account deficit threatens Australia's economic recovery. I again remind the Senate that this year in only a matter of a few months the value of the Australian dollar dropped by some 17 per cent when compared with the United States dollar. Whilst it may be said that the present level of the dollar is of benefit, in that it lowers the price of our exports and thereby increases Australia's competitiveness, such benefits are likely to be only short lived. Higher import prices arising from the dollar's fall will be fed through into higher domestic production costs, increased price levels and, at the end of the line, higher wage indexation awards which must be paid by all businesses irrespective of their current capacity to pay. International competitiveness can therefore be lost as quickly as it has been won.

The Government therefore faces a dilemma which will not be solved by consensus. If it persists with the accord and, as such, sanctions the continuation of full wage indexation Australia's improved competitive position in international trade arising from the decline in the dollar will be blown away. On the other hand, as the Government has placed the accord on the centre stage of its economic management package, less than full indexation could well mean the end of the accord and the predictable trade union response. In the short term many of these potential problems will more than likely remain just below the surface. In 1985 Australia will benefit from an inflation rate which essentially will be in line with that of other major economies. But, as I have pointed out, it is still slightly above the average rate of countries in the Organisation for Economic Co-operation and Development. As the Medicare impact on the low Consumer Price Index rates of the last two quarters wears off and higher import prices take hold, 1986 could well see a return to inflation levels considerably above those of our major trading competitors. I remind the Senate that respected economic analysts such as W. D. Scott warn that 1986 will be the crunch year for Australia as inflation rates move to the 6 per cent mark and our international competitiveness takes a dive.

The Government has produced an answer in the Hawke-Keating trilogy of economic promises based on a new attitude of restraint. If that can be implemented, it may well soften the blow of continued full wage indexation and provide a buffer against harsh international trading pressure. Such a trilogy is therefore, not surprisingly, welcomed by the Opposition. One has noted recent reports indicating that the Government is casting around its spending program with the intention of lopping some $1 billion to $1.5 billion off the Budget deficit. One understands that that will be necessary if the Government is to meet its trilogy undertaking. It would appear, however, that while such restraint and expenditure reduction would be an admirable contribution to sound economic management, the Government had the opportunity in the 1984-85 Budget to reduce significantly the structural deficit, and failed that test. It passed up that opportunity by preferring a continuation of spending programs for the sake of electoral gain. Its decision now to undertake some major surgery on the Budget deficit could well be too late. Nevertheless, the trilogy of promises has been given by the Prime Minister, and we hope that he will do a better job of delivering on those promises than he did on a number of other promises in 1983.

What is missing from the trilogy is an undertaking by the Government to address Australia's burgeoning national debt. As of June 1984 Australia's public sector debt stood at $75 billion. This is equivalent to about $11,500 per employed person. In June 1984 Australia's gross external debt stood at around $43.5 billion and our net external debt at $29.5 billion. As a proportion of gross domestic product net external debt is now estimated to be 16 per cent-a dramatic increase from 6 per cent in 1980. The servicing of our net external debt will place an increasing burden on Australia's balance of payments throughout the remainder of this decade. Interest payments on overseas debt expressed as a percentage of export earnings increased sharply to about 12 per cent in 1983-84 compared with about 4.5 per cent in 1979-80. Principal and interest payments on overseas debt and a proportion of export earnings was 10 per cent in 1974-75. In 1983-84 the ratio was 28 per cent with most of that increase occurring in recent years. Whatever indicator is used, it is clear that the significance of debt servicing has risen considerably in recent years. It is therefore imperative that the required restructuring of the Australian economy necessary for strong export growth is not held back. I submit to the Government that a restructuring summit in 1986 will not be sufficient.

In view of these emerging difficulties, Australians have a right to expect and demand clear visionary leadership. It is no use singing the praises of the private sector as the major generator of investment and jobs. To perform that function the private sector needs a government which allows it to grow. It needs a government which is willing to do much more than call a tax summit when the decisions have already been made or, if they have not been made, the four major factions of the Government parties will go in with fixed positions, as will the Australian Council of Trade Unions and other parties. The private sector needs a government which fulfils its responsibility to reduce in a significant way the level of government expenditure which, in turn, will provide opportunities for reductions in major taxes and charges which have impacted disastrously on business on-cost structures over recent years. That is why the Opposition believes that if the Government were seriously interested in summits it would do better to look at an expenditure summit rather than a taxation summit.

The private sector also requires a government which is consistent in its regulatory reform. While business now has the benefit of financial market deregulation, it is still being stifled by the Government's refusal even to acknowledge, let alone to act upon, the inflexibilities in labour costs institutionalised under the accord and full wage indexation. It is quite possible that Australia's plummeting dollar has in fact finally brought home to this Government the consequences of its inconsistent economic management. We on this side of the chamber hope that is so. We need a government which has not only a commitment but also workable policies which will get unemployed Australians back into the work force. Government funded, short term work programs are no substitute for carefully thought out retraining and ongoing training schemes, adaptive technical education courses and healthy State and independent school sectors. We need a government with the necessary leadership which can open the economy to regional and world markets and encourage the psychology of opportunity rather than threat. We need a government that does something about our declining international competitiveness rather than merely lamenting its passing and expressing the hope that something might turn up to change it around.

What Australia needs in 1985 is leadership which rejects rather than nurtures the attitudinal negativeness which unfortunately pervades this country. If this Government were really serious about its responsibilities, the Governor-General's Speech would have informed us of the reforms that would open the doors to sustained and strong economic growth, a stronger private sector and greater wealth creation. Instead, we heard a eulogy for consensus politics-a form of politics which is increasingly being seen as nothing more than a poor excuse for lack of leadership. In seeking to avoid the need to lead, in seeking to avoid the need to make important decisions, the Government is condemning Australia to more years of second rate status. The Governor-General's Speech is an epistle for consensus finding rather than decision making. Australia has therefore been presented with an economic policy program which is a great disappointment.