Senator CONROY (5:18 PM) —The Howard government has taken $3.6 billion out of public health in cutbacks to hospitals, dental services, pharmaceutical benefits and Medicare, and has put back less than $2 billion—leaving a net reduction in funding to public health of $1.6 billion. The Howard government has taken $3 billion out of primary and secondary university and TAFE colleges and this year has put back less than $100 million. The community is saying in every state that Howard is failing to deliver on health and education. When it comes to public education and public hospitals, soft Liberal voters in key marginal seats are saying that Howard neither cares nor understands.

The Howard government has taken $800 million out of child care and not put one cent back. The Howard government has cut jobs programs by $1.8 billion while youth unemployment is at 27.1 per cent and rising. How can the Howard government explain that GDP will fall from 3.25 per cent to three per cent yet employment growth will increase from 1.25 per cent to 1.75 per cent? The figures do not add up. Standard and Poors, the financial rating agency, argues that the Howard government's projections are optimistic. They argue that economic growth and the current account deficit are likely to be worse in 1998- 99 than forecast in the budget. The Howard government's economic forecasts are based on Australia's trading partners in Asia growing by four per cent in 1999. Given the recent events in Indonesia, that is unlikely.

The Australian dollar is hovering between the US60-62c mark and the current account deficit is at record levels. Since March 1996, the level of foreign debt has worsened by $28 billion. It is forecast to grow by $31 billion in the next financial year. The Howard government's response to the current account deficit has been to put on black shirts, balaclavas and dogs on chains in our workplaces and provide $250 million to two well-known Melbourne crooks, Chris Corrigan and Peter Scanlon, who are currently under investigation by the National Crime Authority, in their attempts to sack 1,400 workers simply because they happen to belong to a trade union.

Mr Rob Henderson, chief economist at Dresdner Kleinwort Benson, was quoted on page 38 of the Australian Financial Review of Monday, 25 May as saying that he expected the Australian dollar to fall to US61c within the next couple of months but went on to say, and I quote:

If by the end of May commodity prices fall as they have at the beginning of the month, I have to revise that down to US60c.

That is what market economists were saying before the crisis but after the government's budget. What that says is that out there in the markets they could see that the projections of the Howard government in its budget were soft, and that is being kind. The government is ignoring the current account deficit because it knows that if there is a further deterioration in the value of the Australian dollar, due to a further reduction in commodity prices, or because of external factors such as the continuation of the Indonesian crisis, a devaluation of the Chinese yuan, or a recession in Japan, the Reserve Bank will have to intervene and put interest rates up prior to the election.

What has happened on the markets is that the Chinese have said that they will not allow their currency to be devalued: they will stand behind it. Those are brave words. It did not work for the UK and it has not worked for any of the other Asian currencies. If market sentiment turns against the Chinese currency, it will not work for them. The consequences of a devaluation in the Chinese currency will have significant further ramifications for Australia and our prospects on all fronts.

If interest rates were to increase before the end of the year, and it is now emerging as a distinct possibility, everybody in the community would presume this to be the commencement of a series of interest rate increases and not just an isolated event. The last thing the government wants to talk about is the current account crisis or how to deal with it, because they know that if it leads to the need for interest rate increases—as is now emerging as a possibility—it will destroy confidence in the housing market and in the Treasurer. This would cost votes in key marginal seats where there has already been a significant reduction in support because of the severity of cutbacks in health, education and jobs programs over the past two years.

The government must be held accountable for the turnaround in our trading performance. The current account deficit in elaborately transformed manufactures is currently $15 billion per annum and will grow to $46 billion by the year 2005. Growth in exports of elaborately transformed manufactures is dependent on research and development expenditure. Growth in business spending on research and development, which reached an all-time record of $4.3 billion in 1996, has now stopped growing for the first time in 10 years following the cuts to R&D support by this government two years ago.

As the Business Council of Australia indicated in their submission to the Mortimer inquiry:

. . . the cuts to certain key business programs (eg DIFF tax concession for R&D . . . ) for short-term revenue purposes are counter-productive, as they adversely affect the international competitiveness of Australian industry and in most cases fail to recognise the legitimate role of government in overcoming market failure.

I want to repeat that: the Business Council of Australia have actually said—certainly the first time that I have ever heard them—that they recognise the legitimate role of government in overcoming market failure. That is quite an extraordinary statement coming from the Business Council. I wanted to emphasise that. They go on to say:

The actions also create medium term damage to business investment and confidence and have highlighted an ad hoc and incoherent approach to industry and investment policy.

That is the Business Council talking about this government's ad hoc and incoherent approach to industry and investment policy. Further, a report for the Australian Business Foundation by the Allen Consulting Group stated:

. . . Support for R&D stood out as the most important Government program. This reflects the nature of firms included in the survey, virtually all of whom have a high commitment to R&D. Given their size, which tends to be weighted to medium sized large companies, the survey firms tend to be intensive users of the R&D tax concession.

In 1996 the government removed $2 billion in research and development concessions. In December 1997, as a consequence of the manufacturing industry's reaction to the 1996 budget cutbacks, the government announced the introduction of the R&D START program which has proved to be a bureaucratic nightmare with little of the $55 million having been spent. No money can be spent under the R&D START program until a public servant decides that the research project has merit. So we have the minister for industry sitting in judgment and picking winners, instead of the marketplace, and this scheme has the approval of Treasury. It does not make sense and it will not work.

The government has removed tariffs on IT and telecommunications imports, but it has retained the three per cent duty it imposed in 1996 on goods previously imported duty free under tariff concession orders. I will come back to that a little later. The duty is purely a revenue raiser, and the government has admitted as much.

This year's exports of elaborately transformed manufactures will grow by only seven per cent—compared with 16 per cent in recent years—because of the Asian crisis. Moreover, if the government does not achieve its surplus forecasts, industry believes there will be further cuts. The net effect of the Asian crisis and the lack of commitment by the Howard government to the manufacturing sector will be reduction in investment and consequent lower growth in the economy.

What have a couple of the major manufacturers had to say directly? I would like to read a couple of quotes from the CEOs of some different companies around Australia. Mr Brian McNamee, CEO of CSL, said:

In the pharmaceutical industry competitiveness requires that R&D projects are carried forward as quickly as possible. The reduction of the 150% R&D tax concession will reduce the speed with which CSL can carry out R&D.

The cutting of the 150% R&D tax concession in the 1996-97 Budget sent the unfortunate message to industry that it is better to go back to producing imitative products based on imported technology.

Mr Jim Fox, CEO of Vision Systems, said:

The reduction in the 150% R&D tax concession created circumstances in which Vision Systems would look to place part of their R&D work in Malaysia where it could qualify for a 200% R&D tax concession.

A number of CEOs of international corporations who would rather not be named said:

In the past the 150% tax concession was the one policy instrument that Australia had that provided a clear signal of the Government's desire to attract R&D based, knowledge-intensive industries. The cutting of the tax concession, without prior consultation or analysis, reduced its signalling effect to potential investors.

That is from the mouths of large industry that maintain large employment in this country. They are saying that the cuts in this area are starting to have their impact now and, if things are left as they are at the moment, they will just go from bad to worse.

In 1996 the Howard government cut support for private sector research and development by $2.5 billion. The reduction in tax concession available for research and development from 150 to 125 per cent and the abolition of the syndication scheme represents a $2.12 billion cut over four years to 1999-2000. The 1998 announcement of $556 million for the research and development START program over the next four years will still leave a budget cut of $1.75 billion for private sector research and development over those four years.

The announcement in this year's budget of $173.6 million over four years for medical research will enable the National Health and Medical Research Council simply to maintain its 1998 calendar year level of grant funding in future years. The announcement does not represent an increase in real funding; it represents a continuation of existing funding which would have lapsed as the five-year program concluded.

Contrast this circumstance with what is occurring in the United States. It is very important for the government to look around the world to find out what is happening, especially in the United States. New legislation introduced in the US Senate proposes to increase funding for basic non-defence, scientific and engineering research from $34 billion in 1999 to $68 billion by the year 2008. So in those nine years the US is going to increase funding by almost double in this area. The legislation is bipartisan. It has the support of President Clinton and the Speaker of the House of Representatives, Newt Gingrich. The legislation provides for the doubling in research expenditure over the 10-year period. This initiative sends a clear signal that the United States intends to maintain its position as the technological leader of the world.

Contrast the scale of the bipartisan initiative in the United States and its message to investors and manufacturers with the direction of the Howard government and federal Treasury. The conclusion has to be that, on the science and technology policy, the United States Democrat government, with the wholehearted and enthusiastic support of the Republicans, is going in one direction and prepared to put billions of dollars into research while our government is not simply failing to lead but also cutting back funding to the same areas. One government is embarking on a program of growth; the other one of cost cutting.

The federal budget reinforces the ideology of the Howard-Costello government. What we are witnessing for the first time in Australian history by conservative governments is not just a reduction in spending in real terms on health, education and jobs but also a removal of a commitment to the public sector, a removal of a commitment to the public good. Recent polling in Victoria in federal seats has produced record levels of support for the ALP on a two-party preferred basis. The level of support is higher than in 1983. You just have to pick up any of the major newspapers that produce a poll in Victoria at the moment and they will all show you that. During the Mitcham state by-election campaign the Labor Party produced a pamphlet saying that Kennett was not delivering on health and education.

The ACTING DEPUTY PRESIDENT (Senator Reynolds) —Order! Senator Conroy, would you refer to the Premier of Victoria by his proper title.

Senator CONROY —Boofhead? No, I couldn't do that.

The ACTING DEPUTY PRESIDENT —No. Would you please withdraw that remark.

Senator CONROY —I withdraw. The Labor Party produced a pamphlet saying that Premier Kennett was not delivering on health and education. The response from swinging voters was that Prime Minister Howard and Premier Kennett not only were not delivering on health and education but also did not care or understand. Hamer and Fraser had a commitment to the public sector.

Prime Minister Howard, Premier Kennett and the Institute of Public Affairs have been saying and are now acting on the ideology that a dollar spent in the public sector is waste and that if you work in the public sector you are a bad person but if you work in the private sector you are a good person. Premier Kennett and Prime Minister Howard are opposed to and are running down public hospitals, state schools, the public transport system and jobs programs and are closing every hospital and school they can lay their hands on. The reaction from the electorate in Victoria is at record levels. It surpasses anything that occurred in 1982 when John Cain was elected and in 1983 when Bob Hawke was elected.

There was nothing new in the budget on unemployment. All the Treasurer did in his budget speech was to reannounce all the programs that are currently in existence. It is clear that the Treasurer and the Prime Minister now recognise that none of those programs have any real effect and they have no new ideas for the long-term unemployed or the youth of this country. Unemployment remains at an unacceptably high level. The government's forecasts are unreliable and the prospects are for a further increase in unemployment over the next year. Even today's papers reveal that a survey of business expectations conducted by the Bureau of Statistics predicts that employment will slump by 0.7 per cent in the September quarter and will continue falling next year.

The jobs downturn predicted by the survey is the sharpest slump in four years and comes despite record job vacancies. The article goes on to say:

Profits were expected to slump by 1 per cent in the coming quarter, with the earnings of small businesses down by 7 per cent.

. . . . . . . . .

By June 1999, employment growth was expected to be running at minus 0.5 per cent.

While a number of business surveys have predicted a grim outlook for the economy, the bureau survey is regarded as the most comprehensive of its kind.

But last week Treasury officials stood by their employment forecasts, notwithstanding the Asian crisis since the budget and notwithstanding Japan virtually being, if not technically, in recession. Treasury officials last week tried to put their finger in the dike and say, `This is still working. These budget forecasts are still accurate.' How do they expect anybody to believe them?

Two weeks ago I was lucky enough to visit a couple of manufacturing plants in Melbourne. One produces drill parts for manufacture locally and overseas and does some retooling of other companies' drill parts and the other produces abrasives. Their anecdotal evidence to me was frightening. They took me for a walk through their plants. They took me into rooms that they said were almost full six months ago. They were almost empty now.

They even looked a little embarrassed to say, `The cutbacks have already started. Our own export orders have been cancelled. Our customers in Australia that we retool for for their export orders started to cancel as well.' To quote them, `the December quarter is looking like a bloodbath'. The MTIA survey that was done last week backed up that anecdotal evidence. It said that this country, particularly in the manufacturing sector, is in real trouble in the next few months. Treasury officials last week tried to pretend to the parliament that there was no need to change their forecasts before the Indonesian crisis and before people realised how much trouble Japan was in.

Recently, I was lucky enough to hear a speech by the Deputy Governor of the Reserve Bank, Stephen Grenville. He talked about a number of issues. He talked about capital flows. It was interesting. Senator George Campbell, you would have appreciated it. He quoted the Chile example, which we might want to talk about at another time. In particular, he stressed that he believed that the RBA official figures about Japan were a little optimistic. He went on to say that his personal opinion was that the Japanese economy was going into recession. As the Secretary to the Department of the Treasury, Mr Evans, said last week, it is not just the World Bank but our own bureaucrats here in Australia who are prepared to tell the truth—that Japan is in real trouble. If Japan is in real trouble, the Treasury forecasts of where we are going have to be rubbery. (Time expired)