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Wednesday, 25 March 1987
Page: 1308

Senator MAGUIRE(3.29) —On behalf of the Government I oppose this motion which has been moved by Senator Crichton-Browne. In June 1982, when Mr Howard was the Treasurer of Australia, the interest rate on 10-year Commonwealth bonds was 16.4 per cent. Yesterday the interest rate on Commonwealth bonds for a 10-year period was 13.5 per cent. So there has been a 2.9 per cent reduction in interest rates on Commonwealth bonds since Mr Howard was Treasurer. In June 1982 the interest rate on 90-day bills issued by the banks in Australia was 18.7 per cent. That was when Mr Howard was Treasurer. Yesterday the interest rate charged on 90-day bank bills was not 18.7 per cent; it was 16.3 per cent. So this motion about interest rates, which has been moved today by Senator Crichton-Browne, is a nonsense.

Senator Brownhill —Tell the farmers that they can get their money at 18 per cent. They will love that.

Senator MAGUIRE —In 1982, Senator Brownhill, the lowest income tax rate in the Australian tax schedule was 30c in the dollar; it is now 24c in the dollar under a Labor government. In 1982, when Mr Howard was the Liberal Treasurer of Australia, the top marginal tax rate was 60c in the dollar but from next July, under a Labor government, the top marginal tax rate will be 49c in the dollar. Despite lower interest rates, despite lower income tax rates, the Liberals have moved this absolutely nonsensical motion which is critical of this Government on the questions of taxation and interest rates which clearly were higher when Mr Howard, the present Leader of the Opposition, was the Treasurer of the Commonwealth of Australia. The facts show that.

Mr Howard, aided and abetted by the National Party of Australia, managed the Australian economy by overvaluing Australia's rate of exchange. He overvalued the Australian dollar in relation to other currencies to create slack and to reduce demand in the Australian economy, and that was very damaging indeed to the rural sector. It kept the proceeds of Australia's rural exports down in Australian dollar terms. Yet today the Liberals have moved this nonsensical motion.

The motion mentions small business but small business has benefited enormously under the economic growth which has occurred in this country as a result of the policies of the Hawke Government. Let us face it, there has been economic growth in this country. We have not been going backwards quarter after quarter as we were when Mr Howard was Treasurer of Australia. Let us look at the rates of economic growth. Real gross domestic product rose by a mere 0.2 of one per cent in 1982-83 when Mr Howard was Treasurer. In 1983-84 the figure was 3.7 per cent. In 1984-85 there was 4.5 per cent real economic growth and in 1985-86 the figure was 4.0 per cent. So in real terms the Australian economy, by the middle of last year, was approximately 15 per cent larger than it was when Mr Howard was the Treasurer. Those are the facts which were published by the Statistician and they are on the record.

Greater spending power in the community has benefited small business enormously. Unfor- tunately, the motion moved today ignores the fundamental economic problem now facing Australia and that, of course, is the deficit this country faces on its overseas trading activities. In 1985-86 the deficit on the current account of the balance of payments was some $13,800m. The motion which was moved by Senator Crichton-Browne mentions interest rates in isolation. It is the typical Liberal approach. The motion pretends that no other questions need to be resolved in the economy. It tries to create the fiction that interest rates can come down without anything else being done.

The balance of payments problems facing Australia have been caused by external factors and it is very important that there be an internal adjustment of the Australian economy. The reality is that we have faced massive falls in our commodity prices. Most of the commodities we sell on world markets have faced tremendous falls in value and I refer to products such as wheat, barley, sugar, coal and iron ore. All those commodities are facing massive declines in prices on world markets. As a result, Australia's national income has been slashed by the fall in export prices. Thousands of millions of dollars have been taken off Australia's national income. The motion ignores that fact; it ignores that reality.

The Hawke Government is responding to the fall in Australia's national income. It has a plan of action, a strategy, already in place; it is a strategy for economic recovery. Interest rate falls are part of that strategy but we will not go into the business of having auctions about reducing interest rates on a short term basis if overall economic management is going to suffer. Under our Government the monetary policy of this country has been restricted to help our balance of payments and to underpin interest rates in order to encourage capital inflow into Australia. An important reason for doing that is to ensure that the Australian dollar is held at a satisfactory level on international exchanges. That is what our policy is about-maintaining the value of the Australian dollar. An appropriate level is needed to enable this country to trade its way out of our current balance of payments problems. We have to boost exports; we have to reduce imports; we have to close the current account deficit on our balance of payments. The management of policy is such as to ensure that our export industries become more competitive.

There are signs that this policy is beginning to work. I instance the figures on the balance of payments current account for the three months to February this year which show that Australia is now achieving some contribution to gross domestic product growth through net exports, that is, the excess of exports over imports. I refer to the overall balance on current account which is more than just looking at exports and imports. It shows that in those three months there was a deficit of $2,600m compared with some $3,100m in the three months to February 1986, the previous year. It is very pleasing to note that in two of the last three months on record-Australia recorded a surplus on physical trade, that is, our exports have been greater than our imports. I do not believe that we can prematurely relax monetary policy and certainly we cannot have arbitrary interest rate cuts as the Liberals are demanding today because they would be premature and damaging and they would wreck the adjustment of the Australian economy to the changed international circumstances.

I suppose this motion which refers to cutting interest rates would be appealing to many persons in the community. But let us look at the immediate impact of that policy. What would it mean if an arbitrary reduction in interest rates occurred? The fact is that there would be a run on the Australian dollar on international exchanges and the dollar would be pushed down to very low levels. I ask the Senate: What would the pushing down of the Australian dollar on international exchanges achieve in the short term? The fact is that it would have a major impact on prices in Australia. The price of imported items expressed in Australian dollars would rise enormously; so import prices would rise, there would be a large impact on the consumer price index and, of course, in turn, there would be a very large impact on costs of production for Australian industries.

I note that this motion, which has been moved by Senator Crichton-Browne, complains about existing cost levels. The honourable senator is complaining about current cost levels facing farmers and small business but the result of this motion, if the policy it calls for were to be implemented, would be a massive explosion in costs in Australia because imported items, expressed in Australian dollars, would go through the roof. Prices would rise enormously. There would be a devastating effect on the rural sector; there would be a severe impact on small business. In short, the motion moved today contradicts itself on this point. Costs would not go down; they would go through the roof if there were a reduction in interest rates in the short term.

I am greatly concerned about the level of interest rates and the Government is aware that some producers are concerned about their levels of profitability. We certainly want interest rates lowered but only when that is appropriate. The Prime Minister (Mr Hawke) has made that abundantly clear. Interest rates are not to stay up a day longer than is absolutely necessary for economic management purposes. They will then come down. However, the Liberals pretend that an easy choice can be made in this matter. They suggest that easy choices are available in economic management in the present day and age but that is an absolute fiction. Interest rates cannot be cut without there being side effects.

I regret to say that the Liberal Party is trying to delude the electorate that easy choices can be made in economic management. It is attempting to perpetrate a cruel hoax on farmers, small business and the Australian people. We are entitled to ask: What would the Opposition do? What would its policies be in the unlikely event that it were sitting on the Treasury benches? How would it deal with the balance of payments? How would it reduce the level of imports? Would it create excess capacity in the economy? Would it have policies that depressed the level of utilisation of plant in industry to reduce the flow of imports into the country? Would it repeat its efforts of 1982-83 and throw another 186,000 Australians on the industrial scrap-heap? Would those policies be introduced to deal with the balance of payments problem facing Australia? It seems that the Liberal Party of Australia would depress economic activity to improve the balance of payments.

I have indicated today that this Government already has in place the policies to deal with this problem. We have reduced the level of government spending. We have reduced the Budget deficit from the horrific figures which applied earlier in this decade and, of course, in May there will be further cuts in the level of government spending in order to reduce the impact of the Budget on the economy. What are Opposition members doing at the same time? What are their proposals for dealing with the economic problems which are facing the country? Looking at what they have been saying in the media over the last year, it is very clear that they are talking about higher government spending. One has only to tot up the various items that have been called for over the last 12 months by Liberal Party and National Party spokespersons to see their range. They would cost billions of dollars to the revenues. They are talking about abolition of taxes in Australia. They are involved in a desperate auction to try to get re-elected at the next election.

Looking at their policies and their promises, one can see that, on one estimate, another $14,000m in commitments would be added to the Budget. This is a massive figure compared with today's Budget position and the likely deficit for this financial year of between $3,000m and $4,000m. Those extra commitments will blow out that figure enormously. I ask members of the Opposition today: How would those extra commitments assist in reducing interest rates in Australia? How would those extra claims for expenditure and for reductions in taxation have an effect in reducing levels of interest rates in Australia?

While members of the Opposition go around the country calling for more and more projects and programs which would add to the Budget deficit, it seems as though there are to be some items which will get the chop. There are some items which this Opposition is looking at to remove from the budgetary program. I refer to a leaked document which was made available to the media and to members of parliament earlier this week in which reference was made to the abolition of farm fertiliser subsidies. That is on the record. It was in that particular document. Senator Crichton-Browne spoke at length earlier in this debate about fertiliser subsidies for the farming sector of Australia. But it appears from this leaked document that was made available to the community over the weekend that fertiliser subsidies are in for the chop in the unlikely event of a Howard Liberal government being elected in this country.

This motion today berates and criticises the Government for its policies in regard to the farm sector. But it seems as though the Liberals have a hidden agenda to remove farm fertiliser subsidies. I remind the Senate that the largest single rural program in the Budget is, in fact, fertiliser consumption subsidies. In 1985-86 the total allocation was $55m for that particular item. I would ask Opposition senators who will be speaking in this debate today-Senator Brownhill from the National Party and Senator MacGibbon from the Liberals who will follow on from Senator Crichton-Browne's contribution-to repudiate this particular document. I want them to go on the record here in this chamber and tell us that they will not cut the fertiliser subsidy to the farm sector.

Senator Crichton-Browne —I am telling you that that is the case.

Senator MAGUIRE —I want to hear it from the others as well, because this is a very important question. It was quite clear in that document that was issued on the weekend that farm fertiliser subsidies are in for the chop and, as of this morning, media contacts with the Opposition had failed to get the Opposition to make a specific repudiation of the particular item. So I think it is very much on the agenda. If honourable senators opposite do not repudiate this particular item-if Senator Brownhill and Senator MacGibbon do not get up this afternoon and repudiate that it is the intention to remove the $55m fertiliser subsidy from the rural sector-they can only stand accused of the grossest hypocrisy for moving this motion today, talking as it does at length about farm costs, farm interest rates and farm taxation. Let us hear it from Senator Brownhill and Senator MacGibbon later this afternoon.

Mr Howard claims that he would cut taxes. Senator Crichton-Browne has moved a motion about taxation. But Mr Howard's own record in government shows that, if he were elected leader of this country, he would be most unlikely to reduce taxation. I refer to the record of the Fraser-Howard Government, particularly in the period from 1978 to 1983 when Mr Howard was the Treasurer of Australia. That Government, over its period of office, promised repeatedly that it would reduce taxation in Australia. That was the pledge it went with to the Australian people in 1975. We had the fistful of dollars election in 1977. Time and time again honourable senators opposite said to the Australian people that they would reduce taxation.

But let us look at the record. Let us look at the official figures published by the Commonwealth Department of the Treasury in Budget Paper No. 1. They show that, over the life of the Fraser-Howard Government, taxation as a percentage of Australia's gross domestic product-that is, Australia's national income broadly defined-did not fall; it rose by 1.7 percentage points. So while Opposition members go around saying to the people of Australia-as they have been saying today to the farm sector and to the small business sector-that they would cut taxation, their very own record in government shows that they are incapable of doing it. They cannot deliver, and people have to be very sceptical indeed when they scrutinise the Liberal's policies for the next elections.

This Government has delivered tax cuts. We have reduced the tax rates. We have reduced the tax rate in the lowest bracket from 30c in the dollar under Mr Howard to 24c-a 6c reduction in that tax rate. We have lowered the tax rate for middle income Australians from 46c in the dollar to 43c today, and it will be lowered to 40c from 1 July next. Also, of course, the top marginal tax rate was 60c in the dollar under Mr Howard when he was the Federal Treasurer. From July it will be 49c in the dollar. So there have been major cuts in taxation and, of course, they will be of significant benefit to small business proprietors and to farmers-just as they will be to the rest of the community.

We have ended the deductions for entertainment allowances; the tax subsidised lunch has gone. Ending that particular lurk is saving the rest of the community some $300m a year. How can the abolition of the free lunch hurt farmers? How can they be worse off? People are not going to eat less, are they; so how can it hurt the farming sector? I ask Senator Crichton-Browne, who is the mover of this motion: Are farmers in Western Australia any different from those in other States? Were they in the habit of driving into town for leisurely lunches at expensive restaurants and then claiming it on their taxation? Of course they were not. They are benefiting enormously, just as the rest of the community is, from the scrapping of the tax-subsidised lunch.

Interest rates are of concern to the Government. The Government has in place policies which will bring about lower interest rates, but we will reduce them only when it is possible to do so in the light of the current balance of payments circumstances. The Opposition is being irresponsible. It claims it can cut interest rates in isolation from other economic variables. It is a nonsense; it is a fraud; it is a cruel hoax on Australians-one which will be exposed at the next elections.