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Thursday, 22 September 1983
Page: 1183


Mr CONNOLLY(3.57) —The Budget which we are debating is the third step in the Government's program to return to Australia prosperity and growth. Both prosperity and growth were promises made by the Government to the Australian people some six months ago at the time of the last election. Since then we have seen two specific actions both of which have a close relationship with this Budget. I refer specifically to the National Economic Summit Conference held in April and the May mini-Budget. It is in that context we must determine whether the economic strategy laid out in this Budget will in fact achieve the objectives which I am sure all Australians would seek. Those common objectives are: A strengthening of the Australian economy, a significant lowering of unemployment, a reduction in inflation and interest rates, and, above all, sustained economic growth. This Budget was the first opportunity which the present Government has had to meet at least some of its primary promises to the Australian people. I regret, however, that in the field of taxation reform in particular it again demonstrated how easy it is to make promises and equally how easy it is to break them.

The Budget strategy was based on a single major risk-the ability of the Government to maintain the prices and incomes accord with the trade union movement. It has been stated by the Treasurer (Mr Keating) and in the accompanying documents from the Treasury that the 1982-83 Budget can succeed only if the Government is able to maintain the prices and incomes accord. If wages rise above the accord level of 7 per cent for this financial year, the entire Budget strategy will completely fall apart. There is no fall-back position. There has been no suggestion from the Government that if that occurs, it will still be able to resurrect something from its strategy. We believe that its entire strategy is based on the premise that it must maintain the accord with the trade union movement. Regrettably, another aspect of the Government strategy which will be a significant problem is the huge deficit which will not be absorbed by the Australian economy in the foreseeable future. On the contrary , this expansionary strategy could well lead to higher inflation and reduce the possibility of economic growth and recovery. I refer, in particular, to wage growth. On that subject the Treasury papers stated:

. . . wage settlements in the year ahead have the greatest potential for influencing the outcomes for inflation, interest rates and corporate profitability-and hence private sector activity in the period beyond that.

The statement went on to say:

A wages outcome higher than currently assumed would have an especially damaging impact on business confidence and private sector spending propensities. The renewal of pressures on corporate profitability, together with a consequent slackening in private demand, would be likely to manifest itself in a further round of labour shedding and another sharp racheting up on the rate of unemployment.

That was the Treasury's advice to the present Government. The Treasury laid out in a public document for all to see the very real risks which the Government was pursuing in developing a strategy based on the belief that it is able to maintain sanity in the trade union movement on wage increases.

Another problem related to this in the context of the Budget deficit so presents both the Government and the Australian people with somewhat of a dilemma-which would be magnified should demand prove even stronger than presently expected while public sector requirements were still growing strongly. Linked in with the prices and incomes accord is the belief of the Government that the only way to overcome the economic problems presently facing Australia is to enter into a period of substantial public sector borrowing and growth in expenditure through the public sector. However, the point tends to be ignored, at least by the Treasurer. It is simply this: Most job opportunities in Australia are not found in the public sector; they are in the private sector. All we were told in the context of this Budget was that the demand by the private sector was expected to fall this financial year and the level of employment was also expected to fall. Therefore there is reason to question seriously whether the basic premise upon which the Budget is built is ever likely to meet its objective.

The other extraordinary influence on the domestic and the external aspects of budgetary control which must be considered is the expected upturn overseas. While we all expect that will have some impact-hopefully a satisfactory impact- on the demand for Australian commodities at the same time it presents some very real problems indeed in terms of budgetary strategy. I refer specifically to the impact of an upturn overseas on the cost of money in Australia and, above all, on the cost to the Australian Government and people of funds obtained overseas. With the upturn in demand there is the likely result, in the United States economy in particular, of a further strengthening of inflation and, with that, domestic interest rates will rise. In that situation countries such as Australia , which depend to a large degree on their capacity to borrow overseas, will find , yet again, increased prices for money forcing up inflation within the Austalian economy.

Realistically therefore one must ask: What are the chances of the prices and incomes accord succeeding as the basic plant of this Budget? I believe that they are small. Already we have seen three major industry groups achieve wage increases outside the terms of the accord. The building industry, the food processing industry and, of course, the oil industry. The Prime Minister (Mr Hawke), in response to questioning from Opposition members in this House, has simply dismissed this lightly claiming exceptional circumstances. But the fact of the matter is that flow on effects in industries are a reality of the wage structure of Australia. Therefore there is very little reason to believe that when some unions gain increases outside the Commission and the national wage decisions they will not stimulate a tremendous desire by other unions related to the industry to have similar increases, whether they are within the context of the accord or not.

The Government has abandoned the approach taken by the previous Liberal- National Party Government to a wage pause which would have allowed inflation to be curbed and would have encourged private sector growth. The point needs to be made that what little level of growth there has been in recent months is to a very large degree due to the fact that the previous Government's wage pause did stand the test. I do not suggest that there is not a case for low income earners to be given an increase in wages to keep up with the obvious increases in inflation. But this can be achieved outside of the normal conciliation and arbitration wage fixing guidelines procedure by the process of specific low income support programs. Such programs, if implemented effectively, would be able to cater for those genuinely in need without the dangerous effects of a flow-on throughout the rest of the economy and thus the entire work force, whether it needed those increases or not.

The risk that the Labor Government is taking in resting its Budget strategy on the prices and incomes accord is further emphasised when one looks at the nature of industrial relations in Australia today. Obtaining the agreement of the Australian Council of Trade Unions is simply not enough to guarantee that all unions will agree. Not all members will necessarily hold the line. Mr Dolan stated:

If other unions within the building and construction industry make claims, I think they're entitled to have them dealt with . . . I would believe personally that they have a case.

I have no doubt that on many other aspects of industrial relations Mr Dolan would take a similar point of view. Moreover, the Budget approach has been directly contrary to the accord which was agreed to by the trade union movement and by manufacturing industry and other elements of the Australian economy, earlier this year. The accord stated:

The Government, in conjunction with the trade union movement, will annually review the tax scale so that the tax burden will not rise automatically with inflation . . . The Government will endeavour to reduce the relative incidence of indirect taxation because of its regressive and inflationary nature.

What have we seen this Government do, both in terms of the May mini-Budget and the most recent Budget? It has made a range of decisions in relation to taxation , especially indirect taxation, which run quite counter to the objectives of the accord into which it entered. It is an accord, incidentally, which it is equally prepared to wave before the trade union movement and, if necessary, also bring to the attention of industry as an example of where standards should be held. However, when the Government had the opportunity in this Budget of meeting its primary promise to the Australian people of reducing direct taxation at least, all we have seen is a significant increase in a whole range of indirect taxes.

The Budget is therefore based on a very high risk strategy. The current deficit is $8.4 billion, which represents 4.7 per cent of gross domestic product. That compares with a deficit of half that amount in 1982-83, or 2.8 per cent of gross domestic product. When this is combined with other borrowing demands of the public sector-I relate that specifically to State demands as well-it will produce the largest prospective public sector borrowing requirement faced by Australia over the last quarter of a century. Public debt interest this financial year will rise by some 22.4 per cent. When one looks at that in the context of the other increases in Budget outlays for a range of other items of government expenditure, from labour and employment right down to transport and communications, the inexorable fact is that we will be spending twice as much on servicing our national public debt than we will be spending on education and defence combined. The fourth highest item in expenditure is public debt servicing alone. Below that we have a whole range of areas of major importance to economic development. Above it are only three items-labour and employment, health and housing. We are spending more on the public debt than we are spending on social security.

The Budget predicts an economic growth of 3 per cent. The Treasurer has pointed out-it has been confirmed by Treasury documents-that this will not be enough to finance the huge public debt, nor will it be enough to build the basis for expansion in employment, one of the principles upon which this Government was elected. Regrettably the Government has demonstrated in this Budget that it has no long term economic strategy at all. It is literally living month by month in the hope that-provided the trade union movement does not let it down and provided its accord will hold over this financial year-by next year it may be able to demonstrate some small increase in overall productivity. But it is a long term gamble; a gamble which every Australian man, woman and child- especially the families of Australia-will have to live with and, quite likely, if it fails, pay a very high price for.

There are four major and clearly interrelated risks in achieving the sustained recovery in the domestic economy for which we all hope. These relate to interest rates, inflation, the balance of payments and the high uncertainty linked with low private sector confidence. The Treasury has gone further than this. It has predicted a fall in private business investment, increased unemployment and continued pressure on interest rates. Yet these are precisely the problems which the Government was elected to overcome.

Contrary to the economic strategy adopted by the Labor Government, the Liberal party believes that the only last means of achieving sustained economic growth is through the private sector. The 1983-84 Budget provides an expansionary thrust to the economy but there is nothing in it to encourage the private sector which, as I said earlier, is the ultimate dynamo-the base upon which employment is to be developed in the Australian economy. The Budget concentrates on big government public spending. It has been demonstrated time and again that when it is related to a significant increase in public debt it will not solve the long term economic problems currently facing Australia. It cannot solve them because it will build into the system a further demand for money which will force up its cost, which in turn will affect the volume of supply as well as inflation. One of the fundamental principles that we have been facing in this country for too long is the need continually to bear down on inflation and make sure that our fiscal policies as well as our monetary policies are not inconsistent with that fundamental requirement.

I refer once again to unemployment. The Budget provides only palliatives to assist those already hit by the recession rather than creating new job opportunities. The various schemes which the Government has initiated are simply directed at changing the statistics in an aggregate sense. As I have said in this House before, what use is it simply to offer those who have great difficulty finding jobs access to the public or private sector for between three and six months, after which time they find themselves once again on the social scrapheap of unemployment-a situation from which no honourable member of this House can draw any comfort or satisfaction? Ultimately we must create, through direct government support of the private sector, opportunities for individuals to increase their productivity and reduce costs and to increase their opportunities to improve the level of employment.

The whole effort by the Government to use the public sector for the creation of jobs, such as the 6,500 extra public servants, as well as what little may be done to assist the private sector in this regard, is limited by one fundamental point, namely, that there will be a risk of a rise in interest rates and inflation if economic policy proceeds along the lines directed by the present Government. There will be pressure on wages and hence there will be difficulties if our industry remains uncompetitive. Declining business investment and weaker consumer spending will also have a major effect in relation to taxation. Meanwhile we see in other sectors-specifically the farming sector-that there have been significant increases in meat inspection charges, decreases in assistance to forestry and fishing and decreases in specific assistance to pastoral and agricultural industries. But, of course, the biggest problem of all facing much of Australia, namely, the degradation of our land-soil erosion- received the most ungenerous subvention of exactly $1m. The Treasurer has admitted that, of all of the problems facing Australia, unemployment must be seen as the primary one. But he has also stated that it will not decline next year. The Treasury Papers predict that a further 140,000 people, on average, will be receiving the employment benefit over the remainder of the financial year.

The Government has therefore adopted an ad hoc approach to many important issues which will affect fundamentally the Australian community. These include an assets test on pensioners, changes to superannuation taxation and additional taxes on fuel and fortified wines-the latter tax has now been cut by 50 per cent due to an error in the Budget. These are just a few examples of the measures introduced as part of the Budget. They are worth mentioning because these are areas where the Government has already had to reassess its actions and, in some cases, even to reverse policies.

The assets test for pensioners, which has been the cause of such major concern, is a prime example of the chaotic and insensitive approach that the Labor Government has taken. The Government claims that the assets test will stop the greedy and the wealthy pensioners receiving the full pension and other assistance. What the Government has forgotten in its glorious test is that many thousands of pensioners do not even own their own homes. That has not been taken into account. Pensioners should be encouraged to have savings which they legitimately keep for their long term independence and wellbeing. Those people now find themselves being discriminated against because they are not traditional home owners. Many honourable members of this House would confirm that evidence. I have received it from many of my own constituents. Furthermore, pensioners who have put their savings into a holiday home or a piece of land, or have saved up for their children so that they in turn can build, are to be regarded as greedy.


Mr DEPUTY SPEAKER (Mr Millar) —Order! The honourable member's time has expired.