Senator MURRAY(5.13 p.m.) —The last 18 months have been a low point for industry policy and particularly for businesses involved in manufacturing industry. The Democrats have stood shoulder to shoulder with industry groups to oppose very damaging short-sighted cuts to vital industry policy programs such as the R&D tax concessions, bounties, the export market development grant scheme, the DIFF scheme and the imposition of a three per cent duty on imported business inputs that previously entered duty free.

I have described these sorts of policies as not about avoiding picking winners but rather as picking on winners. The coalition government's view, certainly in the first 18 months, has been that if a program worked it would cut it back because expenditure was no longer needed. That is a singularly short- sighted policy which has affected jobs, investment and growth.

This view, which is known as the Treasury view, that the best thing government can do for industry is absolutely nothing, in line with an extreme view of how the market works, is simply out of step with international best industry policy practice. It is out of step with the policies and experiences of those countries with successful industry policy and impressive economic and jobs growth.

The Democrats and the Senate have had some successes in minimising the damage the coalition has sought to inflict. For example, the Senate—and I draw your attention to particularly me, Senator Cook and Senator Harradine—did succeed in extending the shipbuilding bounty and preventing the abolition of book, machine tools and robotics bounties ahead of schedule. We did succeed in retaining eligibility of trusts and airfares under the EMDG scheme. We are currently pressuring the government to tighten and improve Australia's anti-dumping legislation, and I expect we will be successful in that area. Anti-dumping is an area in which hopefully the government is moving in the right direction.

We have welcomed the outcomes focused approach adopted by Mortimer and the MTIA reports and their endorsement of the view that governments can and should be involved in pro-business, investment enhancing, jobs friendly policies. We look forward to the moist or the damp group of the coalition actually triumphing over the hard and dry people who predominated in the first 18 months.

I hope for the sake of the 800,000 unemployed, the long-term unemployed and the 500,000 underemployed Australians that the government does listen to Mortimer and other hands-on campaigners and reverses its hands-off policy directions of the last 18 months, especially in the areas of innovation, investment and job creation.

In the short time available I will do a quick stocktake of some of the key developments that we think are important. One of the most deplorable actions undertaken by the coalition has been the savage cuts to business R&D assistance. Time and time again I, Senator Cook and other senators have asked: have you done a cost-benefit analysis? What does the ledger tell you will be the effects on jobs, investment and growth of these actions? Regrettably, the coalition persisted with the view that business R&D assistance should be cut.

Given that less than two per cent of Australian based firms invest in R&D, given that our regional neighbours are achieving substantially higher annual average growth rates in business R&D expenditure, given that Australian business investment in R&D has peaked at only 0.7 cent of GDP, which is far less than developed countries such as Japan, the USA and Switzerland, to name three, each of which invests around two per cent—nearly three times that of Australia—of GDP per year in business research and development, the short-sighted nature of the government's R&D decisions cannot be overestimated—short-term budget revenue gains for long-term jobs, investment and growth damage.

Investing in R&D is crucial to ensuring sustainable growth, improving our export performance, improving our intellectual capital and reversing the brain drain of some of our best and brightest in the academic, scientific and business world. Few disagree now but the decision to wind back R&D assistance was one of the coalition's worst decisions. Even the Industry Commission, which we all know the Democrats believe is a dry and hardline economic rationalist think tank, did support the 150 per cent tax concession for R&D.

Labor rightly sought to prevent the cuts to the 150 per cent tax concession scheme, but it wrongly sought to defend the R&D syndication scheme. The R&D syndication scheme did boost R&D investment levels but there were serious doubts about its cost-effectiveness. There were also clear suggestions that the scheme was being manipulated by some of the major financial institutions. Allegations of creative accounting were widespread.

The Labor Party needed to acknowledge that a scheme that it had developed and implemented was not cost-effective and was possibly being manipulated. Labor was and remains still too close to its spell in government to admit this. Labor often remains unable to accept that the new government, the coalition government, not only has a right but has a duty to constantly review industry assistance programs and to improve, replace and even abolish programs which are not effective or not sufficiently effective. That is not our problem. The problem is that the government cut; it did not create.

The government did not simply abolish the syndication scheme. At least this time the government cut something and did replace it. It replaced it with the Start program, and for this we supported the government, as did Labor, I seem to recall. However, I am not convinced that the Start program is adequate, and I believe our whole package of R&D assistance schemes needs to be reviewed, overhauled and boosted. The Democrats do not want a mere return to the programs that Labor had in place.

Not all those programs still need to be alive today, although some, such as the EMDG scheme, were outstanding and need to be given the approbation they deserve. If Labor at times appears guilty of blindly supporting its old programs, even if they are suspect, it must recognise that it can bring disrepute to the argument that industry assistance programs and active interventionist methods are necessary. That can be seen to be support for a partisan view, not for a policy measure which has integrity in its own right.

There are many instances when government intervention is warranted, when market forces left to themselves will not deliver outcomes most beneficial to the community. I mean `community' in the broader sense—the business, social and national community. But if parties such as Labor—a party which is the alternative government—can actually publicly defend inefficient and potentially manipulated programs, then the public and the key opinion makers will lack confidence in government intervention.

Another appalling decision was the government's move to abolish tariff concessions on business imports. The tariff concession system allowed products to be imported duty free if there was no equivalent Australian manufac tured product. The rationale was that tariffs existed to protect Australian industries and should not apply to goods where there was no local industry to protect. The decision to abolish it caused understandable fury within industry. To his credit, the Minister for Industry, Science and Technology, John Moore, recognised how stupid this decision was and described it as `dreadful policy'.

Where did the idea come from? Regrettably, it came from the Labor Party. The motion before us today says that the government has failed to come up with any initiatives on industry policy apart from those it took from the ALP. Well that is one you should not have given them. After intense lobbying from industry, which was supported by the Democrats in their lobbying, the government eventually adopted the inept compromise of effectively imposing a three per cent tariff on previously exempt business imports.

The industry minister described this as the best outcome under difficult circumstances. What he did not mention was the difficult circumstances were the dry as dust hard boys in the cabinet. It was a pathetic outcome and the difficult circumstances refer to the complete ineptitude of a cabinet full of lawyers and of the Labor opposition's inability to accept that that recommendation had been wrong. Labor then completely ignored the impact on business. They wanted to impose a five per cent tariff. When the three per cent tariff came in, the Labor industry spokesperson, Simon Crean, then launched a campaign against the impact that these changes would have for consumer goods, but there was not a mention about the impact on business imports that I can find or recall.

Business warned that the changes were likely to render the scheme ineffective because claiming back the two per cent value on goods would not be worthwhile. No-one but the Democrats in the Senate took this seriously. Regrettably, it has since been revealed that applications for tariff concessions have fallen by more than two-thirds from 3,273 in 1995-96 to 1,029 in 1996-97. This has borne out the fact that a good proportion of industry complaints were not just rhetoric but justified.

Let us now turn to the issue of tariffs. Both Labor and the coalition are running around as the Latter-day Saints of tariff reductions. Regrettably, they get more media exposure than we do so we are not getting the contrary view across. All of a sudden, both appeared to have discovered that unilateral tariff reductions means job losses. Yet, for a decade and a half of Labor governments who were fully supported in this by the coalition, it was the Democrats alone who strongly opposed the unilateral—and I emphasise unilateral—cuts in tariffs, quotas and bounties pursued and implemented by Labor. The coalition simply cheered them on. In other words, Labor and the coalition stood together as the conservative group supporting unilateral cuts in tariffs, quotas and bounties.

The media have been vigorous in promoting the view that the government and Labor have had an about-face on tariffs. That they ignored the Industry Commission reports into both the car and textile, clothing and footwear industries was commendable, but this was not an about-face; it was simply a slowing down. The economic cheer squad—those favouring tariff reductions—have been scathingly critical of the government for slowing tariff cuts while other media commentators catering for Howard's battlers came out cheering that John Howard froze tariffs and saved jobs.

But did the government and Labor really ignore the Industry Commission? Have they really done an about-face on tariffs? We do not think so. With the aid of the media, the government has been able to perpetrate a major hoax on the Australian public because tariffs have not been frozen. It has not given up the goal of unilateral tariff reductions. Tariffs in the car industry are currently falling at a rate of 2½ per cent a year and at a rate of three per cent a year for the TCF industries, and they will continue to do so. By the year 2000, they will have fallen to a maximum rate of 15 per cent for the car industry and 25 per cent for the TCF industries.

These reductions are set to take place irrespective of what our trading partners do and irrespective of their impact on employment and investment in Australia, and that is our complaint. To adopt the Democrats' policy you would have to adopt the policy of reciprocity, and you have not. You have maintained the policy of unilateral reductions. We think it is dangerous policy considering the car industry directly employs 22,000 people and TCF industries directly employ up to 100,000 people and a further equivalent number, it is understood, of outworkers. Hundreds of thousands of employees and families are indirectly affected.

Unfortunately, the Liberal, Labor and National parties are still fundamentally opposed to reviewing these decisions. The recent decisions in both the car and TCF industries only deal with tariffs after the year 2000. So what we have in the tariff decisions is a change in timing, not a change in direction. Do they stop tariff reductions? No. On the contrary, the government has decided to unilaterally—and, once again, I emphasise the word `unilaterally'—reduce both car tariffs and TCF tariffs by the year 2005. We say it should be a reciprocal view we take relative to our competitors.

By 2005, the maximum tariff rate within TCF industries will be 17½ per cent, and this will apply to clothing and finished textiles. Other TCF products will have a maximum rate between five per cent and 10 per cent, regardless of what our competitors have or do. Isn't that the most astonishing thing—regardless of what our competitors have or do?

In the car industry tariffs will fall to 10 per cent in 2005—again, regardless of what our competitors have or do. Whether this occurs in one step as the government proposes or as a series of steps as the Industry Commission proposes is largely irrelevant. The end result is much the same. The end result is that tariffs are eroded unilaterally. The end result is that our tariffs will continue falling unilaterally while no regard is given to what our trading partners do.

Unilateral tariff reductions are to continue through to the year 2000 and on to the year 2005. They will occur in one step rather than in yearly steps as recommended by the commission. If anything, the supporters of unilateral tariff reduction should be elated. They are getting their tariff reductions but at the same time the battlers are cheering. The battlers have been deceived into believing that there has been a reversal on tariff policy. But still, every month, every year, the industries and the factories close down and the jobs are lost. For example, 275,000 full-time jobs have been lost every year for the last decade.

When are you going to accept that economic rationalism does not deliver the goods? You have the evidence before you. All that has occurred is that the tariff reductions have been packaged slightly differently, a temporary pause slotted in and that is all. Do not get me wrong—we at least welcome that, but it is not far enough.

Labor are claiming victory. They are saying that the government have adopted their policy. The coalition are claiming victory. They are saying, `Look at what we have done for jobs.' But there is no difference really between the Labor Party and the coalition on this because they both accept the same dry economic dogma. Both the government and Labor have remained committed to the Industry Commission view. Both Labor and the coalition have been like minded on tariffs for the past two decades. The Democrats have stood apart. Only the Democrats have consistently remained opposed to unilateral disarmament.

The coalition have faltered badly. They have failed to respond to growing job insecurity, especially for those workers in manufacturing. They have failed on their election promise to create 200,000 new manufacturing jobs. They have failed to adopt both economic and job growth targets. They have failed to adopt an industry policy which is comprehensible. What they have adopted is an intention to pursue macro and micro policy and macro and micro reform. That has a place. Without doubt, some of it will be good. Some of it will be bad, from our point of view. But we need an industry vision and direction.

The Democrats—along with the Labor Party when they have voted with us—have been able to minimise some of the damage that the coalition has sought to inflict. I assure the Senate that the Democrats will continue pressuring the government to deliver an activist, interventionist, strategic industry policy. We will continue to pressure the Labor Party to start to move away from the economic rationalist dogma they have so wrongly pursued over the last decade. I advise the Labor Party that we will support their motion if they omit subparagraph (a)(ii). If they do not, we will be unable to support their motion.