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Thursday, 16 May 1985
Page: 2067

Senator DURACK —I refer the Minister for Finance to the claim in the Treasurer's mini-Budget on Tuesday night that defence spending would be cut by $83.9m against the Forward Estimates. I also refer the Minister to an estimate by officials of the Department of Defence given to a Senate Estimates committee on 18 April last that the full year costs to the defence vote of depreciation of the Australian dollar would be between $350m and $400m. In view of the fact that the Forward Estimates will be substantially affected by the depreciation of the dollar, again quoting the Treasurer, does this mean that the so-called cut will be wiped out by this substantial increased spending, or does it mean that the Government's defence effort will have to be substantially reduced to accommodate the effects of depreciation of that magnitude?

Senator WALSH —The Opposition continues to thrash around in a futile attempt to find the sort of misrepresentation in last Tuesday's statement that was characteristically contained in similar statements which the previous Government delivered to the Parliament. All of the figures-I am sure I have said this before; it has certainly been published before, but I will say it again slowly and as monosyllabically as I can-in the statement published on Tuesday night were reductions from the Forward Estimates of expenditure calculated on the same parameters which applied at the time the Forward Estimates were prepared at the end of 1984.

It is correct-one would not have to be an arithmetic prodigy to work this out-that defence outlays, at present exchange rates, will be higher than they would have been under the parameters which applied at the end of 1984. The Government did not adjust any of the figures in Tuesday night's statement for exchange rate effects. Indeed, it would have been impossible to do so because it would have had to adjust the figure every day as the exchange rate changed again. As a practical matter it would have been impossible to do so. For that reason it was not done.

If the exchange rate stays where it is now, there will be significant increases in defence outlays. There will be other changes in Budget figures which will more than offset those outlays. Due directly to the higher consumer price index effects of that change-all this is assuming that the Australian dollar value stays in the area where it is now, that it does not move too far away from where it is now-the increased revenues will more than offset the increased outlays in total if the normal pattern of revenue and outlays changes following this sort of adjustment applies. Moreover, the stimulatory effects upon growth of the devaluation are likely to add considerably, as a separate item, to government revenues and conceivable have a negative effect on government outlays.

Senator Durack is worried about the balance sheet at the end of the line. It is correct that outlays on defence and on some other items will be increased if the dollar value stays where it is. Senator Durack cited figures of between $350m and $400m. I do not know precisely on what exchange rate they were based, but they sound to be of a reasonable order of magnitude. If what Senator Durack is worried about in the end is the final revenue and expenditure balance, as a proportion of gross domestic product, I inform him that because of the devaluation all of the movements are likely to be in the direction which this Government regards as being favourable-other than the CPI effect, of course-and which I would expect even the Opposition would regard as movements in the right direction.