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Monday, 20 May 1985
Page: 2183

Senator SHORT(8.10) —I join this debate to look at just where this Government is attempting to go with its overall economic policies and to compare its windy rhetoric with its actual performance. The more one looks at what the Government is actually doing, the more difficult it is to find any identification between this performance and what it says are its policies. However, the task is complicated still further by the fact that different Government spokesmen say different things, and even the same spokesman says different things from one day to the next. One has only to examine the statements of the Prime Minister (Mr Hawke) on tax reform. One day the Prime Minister says that tax reform is essential. The next day he says that tax reform is not worth the effort if the political difficulties are too great. The following day he is back on the original tack, and so on. The Treasurer (Mr Keating) said in his so-called expenditure cutting exercise last week that:

. . . it is the Government's view that the wage indexation case should proceed as normal in September under the principles.

The very next day both he and the Prime Minister backed away from that statement, but they backed away in somewhat different directions. The day after that, the Treasurer went down yet another path. Then he was contradicted in the Senate by the Minister for Finance (Senator Walsh). Then today, in Question Time, the Leader of the Government in the Senate, Senator Button, threw more confusion into the ring when he said that the Government was 'cool' at this stage about whether it would seek discounting for devaluation at the September wage case hearing. In other words, Senator Button was saying: 'Maybe we will; maybe we won't. Let us toss a coin.'

What a way to run a ship. With all the tacking that this Government is doing-to borrow a nautical term-it is no wonder that the captains of the ship of state are looking decidedly green. What worries me is that the ship itself may founder if this absurd, dangerous and confusing state of affairs continues.

I turn now to a brief look at just what the Government is doing in the four major areas of economic policy for which it has direct responsibility. These areas are, of course, fiscal policy, monetary policy, wages policy and balance of payments policy. Unless appropriate policies in each of these areas are pursued and unless these policies are consistent one with another, we cannot hope or expect to have the economy growing in the way which is necessary if living standards are to rise and if new jobs are to be created.

First, let us consider the Government's fiscal policy; that is, its approach to government spending, taxation and deficit budgeting. Last week the Treasurer produced his long awaited expenditure cuts. It is just as well that we had not been holding our breath, for despite all the huffing and puffing and all the build-up, the result was nothing short of pathetic and grossly misleading. The Government claims that it has cut its 1985-86 expenditure estimates by $1 1/4 billion. But this is a gross overstatement. It is based on the unrealistically low inflation figure of 4.5 per cent. It includes several hundreds of millions of dollars of spending which has merely been deferred, not cancelled, and it includes numerous increases in government charges which, of course, are totally different from reductions in expenditure.

Even if we were to take the exercise at its face value of $1 1/4 billion, that would simply mean a reduction in the Forward Estimates of 1.8 per cent-hardly a significant reduction. For example, let us compare it with that of the previous Liberal Government. In 1977-78, that Government reduced the Forward Estimates by 6.6 per cent. In 1978-79 it reduced them by 3.6 per cent, and in 1979-80 by 2.1 per cent. Each of those reductions took place in an environment in which courage in decision making was much more difficult than in the environment of today. The present Treasurer has not shown courage; on the contrary, he has failed to face up to his responsibilities. He has failed to give economic management the lead that it needs. No wonder the business community, now that it has had a chance to look at the statement, has given the Treasurer's announcements a cold shoulder generally. No wonder the foreign exchange markets have treated the whole affair as a damp squib. However, the real test of the Treasurer's mettle will come with the August Budget, because only then will we know what the Government's total level of proposed spending for 1985-86 will be. If experience is any indicator, the Treasurer will again fail the test of financial responsibility. In his first Budget, in 1983, the Government added $2.5 billion in new spending programs. In 1984, the Treasurer added a further $1.2 billion. It is for these reasons-nothing whatsoever to do with any situation that Labor inherited from the previous Liberal Government-that government spending under the Hawke Labor Government has risen in the past two years to the highest level in our history. The present Government, on its own figures, is the most profligate government in Australia's history. It is for this reason that the present Labor Government is also the highest taxing government in Australia's history. The level of tax receipts has grown under this Government more than at any other time in our history, with the notable exception of 1974-75, under the previous Labor Government-and it is giving even that increase a nudge.

Senator Peter Rae —I wonder whether you could send a copy of your speech to Senator Maguire, who does not know these facts. He is not in the chamber tonight to hear this.

Senator SHORT —I would be delighted to do so. I wonder whether he would understand it. The Government is talking about tax reform at the July summit, but one cannot look at tax reform in any meaningful way unless one is looking to lowering the overall tax burden. One cannot lower the tax burden unless one reduces the level of government spending. It is now patently clear that the Government will not lower its spending. It is quite certain that spending under this Government will increase. To make matters worse, it now appears that the tax summit will not even look at the appropriate size of government spending or the appropriate size of government revenue.

In my maiden speech in February, I urged the Government that if it proposed to hold any sort of summit-which in the event is nothing more than a gimmick-it ought to hold an expenditure summit. That call fell on deaf ears. So far as the tax summit is concerned, I am appalled that it now appears that the issue of business taxation will not be addressed at all. Business taxation is in a mess.

Senator Walsh —Who told you that?

Senator SHORT —Senator Walsh should just ask the business community. He should also ask a much wider range than that.

Senator Walsh —Who? Come on; name them.

Senator SHORT —Most of the leading business organisations would agree with that statement. Senator Walsh's interjection is fairly indicative that this Government is not talking sufficiently to the business community. Business taxation has developed in fits and starts over the years, and with no cohesion. For that, I do not blame just the present Government, I blame successive governments. The whole area of business taxation needs urgent overhaul if we are to encourage productive investment and to create new jobs and new income. Yet the Government will apparently choose to ignore it altogether.

Despite the massive increases in taxation under this Labor Government in the past two years, borrowings by the Government to fund its profligate spending programs have mushroomed. In Labor's first two Budgets alone, Federal Government borrowings have increased by almost $15,000m. That is $1000 for every man, woman and child in this country. This year that figure will certainly increase to more than $20,000m. These borrowings have to be repaid, and they have to be repaid with interest. In 1984-85, this year, the interest bill alone will be $5,600m. In 1985-86, it is projected to rise to about $6,500m. That is almost certainly an underestimate now that we have the highest real interest rates in 50 years as a result of this Government's mismanagement. In 1985-86 the interest on Federal Government debt alone-I exclude entirely from these figures the enormous debt incurred by State and local governments-will be 9.5 per cent of total Government spending. That means that for every $10 that the Government has taken from us in tax, almost $1 will go simply in meeting interest payments. The interest bill in 1985-86 will be more than we spend on the defence and security of this nation and much more than this Federal Government spends on items such as education.

That is a dangerous and highly destabilising situation. It lowers our standard of living; it reduces our credit rating with the rest of the world; and it has all the seeds of feeding on itself and becoming an increasingly serious problem. Yet the Government seems oblivious to the dangerous waters into which it is leading Australia. A similar comment to that which I have just mentioned on the interest bill could be made in relation to the interest on our foreign debt. So great is our foreign debt now that for every $8 of exports we need $1 to repay the interest on our foreign borrowings, our foreign debt. That does not include covering 1c of repayment of those borrowings.

I wish now to look briefly at the Government's monetary policy over the past year. In the second half of 1984 the Government let money supply grow at a rapidly increasing rate. The growth far outstripped the Government's own monetary targets, regardless of which definition of money supply is adopted. What did the Government do? Instead of reining in the growth, instead even of revising its targets, in January this year the Government chose simply to abandon monetary targeting altogether. The failure of the Treasurer last week to restate and reinstate monetary targeting is of major concern. It has unsettled the financial markets. It has produced uncertainty as to the Government's monetary policy intentions; it has caused a rise, certainly in short term interest rates; and it has further eroded the already eroded business sector confidence. Tonight I urge the Treasurer to announce firm monetary targets as soon as possible.

The Government's decision in 1983 to float the Australian dollar was welcomed by my Party and certainly by me. It was a sensible and a courageous decision, and it is still the correct policy. There can be no suggestion that we should abandon this policy. But a floating exchange rate has certain very important implications for the other three arms of policy, particularly for wages policy and monetary policy. This fact was pointed out very clearly by the Secretary to the Treasury, Mr Bernie Fraser, in a speech in Sydney last week. Mr Fraser very rightly raised the question of whether monetary policy would be able to shoulder the burden of coping with the inflationary impact of the recent depreciation of the floating dollar if the Government failed on the wages and fiscal policy fronts. He also pointed out that the floating dollar had presented a sizable challenge to the rationale behind the prices and incomes accord between the Australian Council of Trade Unions and the Australian Labor Party. He went on to say:

Indeed, deregulation associated with the floating of the exchange rate poses some questions about the longer-term compatibility of those arrangements with regulated labour markets-questions which will come under increasing notice if the depreciation heightens the extent to which rigidities in the labour market pull against economic forces.

In other words what the Secretary to the Treasury was saying was that, unless both the Government and the trade union movement recognise the need for greater flexibility in wages, the potential benefits of the recent devaluation of the Australian dollar will quickly be squandered and we will be worse off than we were before the devaluation. We will also be faced with a continuing loss of the international competitiveness which is so essential if we are to avoid slipping further down the ladder in terms of relative living standards.

It is only 30 years ago that Australia was the third or fourth richest country in the world on a per capita basis. Today we are about twentieth. On present rates of growth several of the nations of South East Asia will have higher living standards than ours before the turn of the century, which is less than 15 years away. Wages and labour productivity are the essential elements in our overall cost structure and our competitiveness and therefore determine the sort of economy and the sort of standard of living that this country will have. Yet we are living in a time when our international competitiveness is slipping and when we have had the largest devaluation of our currency in more than 30 years. We are living in a situation, in a lotus land, where wages, despite the so-called rigidities of the accord, have over the last 12 months or so increased significantly more than the consumer price index.

The Government and the trade union movement appear incapable of grasping this simple fact-that wages and labour productivity are the key to our success or failure as a nation and the key to our success or failure in terms of government responsibility for Australians. How else can we explain the Government's and the ACTU's refusal to embrace discounting at the forthcoming national wage case? The Government's fiscal and monetary policies, wages policy and exchange rate policy are not in line with each other. As a result this Government is mismanaging the economy in a way which will prove extremely costly to all Australians over the next year.