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Wednesday, 11 May 1994
Page: 655

Senator CRANE —I seek leave to speak for five minutes on a matter arising out of question time.

  Leave granted.

Senator CRANE —The matter that I want to raise comes out of the question that Senator Parer asked Senator Cook today, and it deals with the situation of our current account deficit and the fact that we are looking at a blow-out of $2 billion over last year's figures. I believe it will become the Achilles heel of this government in terms of the current budget because, without controlling the current account deficit, the pressure on interest rates grows to such an extent that it becomes absolutely uncontrollable.

  We have only to look back through what happened in the 1980s to see how that impact flowed through. When the Hawke government came into office in March 1983, we saw the current account deficit blow out very significantly from $7 billion to $18 billion and, at the same time, we saw interest rates range from around 12 per cent up to in the order of 15 per cent. That was a direct impact.

  Then towards the end of the 1980s and the beginning of the 1990s, the government was using interest rates as its single manner of controlling monetary policy. That is what Senator Parer's question was about today. He asked: is the government going to use interest rates? Will it rule them out? What other mechanisms does it have to control the situation with the imbalance between imports and exports into this country? Of course, Senator Cook could not answer those questions.

  In 1989 the current account deficit had blown out to $22 billion. Then in 1990 it dropped to $16 billion. In 1991-92 it dropped to $12 billion. In 1993 it was back to $15 billion. And, of course, this year it is estimated at somewhere around $16 billion, and likely to be at $18 billion or $18,000 million for this coming year.

  It is worth tracking interest rates through this time because, as the current account goes up, interest rates go up in sympathy—although not in exactly the same way. As interest rates were coming down in the early 1990s, interest rates came back at the same time. As the markets read what has been happening over the last six months or so, with the anticipation of what was going on and the lack of courage of this government to be able to address the economic scenario in what I call an effective manner, the 10-year bond rate has increased from 6.8 per cent to 7.95 per cent. Already, in anticipation of what was coming, there has been an increase in interest rates of one per cent.

  Until the government is prepared to allow business in this country to be able to compete with imports, we will have this scourge sitting on us all the time. That means that other than increasing taxes, as the government has done in this budget, albeit by decisions made last year—decisions that are flowing through now in such areas as sales tax, fuel excise, FBT exploitation, which is the only way I can describe the fringe benefits tax, and the impact in the states of payroll tax and such things as occupational superannuation—the only way it has of controlling the current account is by controlling interest rates. It is the weakness of this budget and the Achilles heel of the government.

  The net flow-on effect as we go through the next two or three years, unless the government is prepared to address the things I have outlined here, will be that the pressure on interest rates will become so great that business will get the same hiding from the government that it got in the late 1980s.