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Thursday, 6 October 1983
Page: 1435


Mr LUSHER(12.03) —There is an assumption in Australia that the United States recovery will flow on to our economy. I am one who has no desire to be bearish about Australia's prospects, but equally I believe we must be realistic and keep our feet on the ground about our prospects. There are few direct linkages between the Australian and United States economies. Our trade with the United States is two to one in its favour. Our total exports to the United States are valued at around $2 billion. This represents about 10 per cent of Australia's total exports. About half of these exports to the United States are agricultural exports, mainly beef.

The United States buys little of our mineral production. Even if Australia could expand its beef exports after the drought, it is another question whether they would be welcome in the United States, especially in an election year. The United States recovery is based in a number of areas. Housing, motor vehicles and consumer spending are very strong although rising interest rates are being felt in the housing sector. The traditional smokestack industries are improving even though they are not expected to achieve their earlier economic dominance. The sectors which are showing the most rapid growth are what have become known as high-tech. These include communications, computers and point of sale/stock control equipment. Most reasonable analysts expect the growth rate in the United States economy to come back to a sustainable four per cent level after the initial post-recession activity.

The other factor on the horizon is an inevitable increase in inflationary pressures. Money supply has been allowed to blow out in order to ensure the recovery is not choked off. This has had the effect of holding nominal interest rates down but also implies inflation at higher levels next year. Nominal rates are now rising as the Federal Reserve Board has been attempting to bring the money supply back under control. Real interest rates have remained very high all through the recovery phase, indicating that the market is anticipating higher inflation levels and also demonstrating a distrust of the ability of Congress, the Administration and the Federal Reserve Board to come to grips with the huge deficit and its economic effects.

From Australia's viewpoint, the other big factor in the United States recovery is the persistent protectionist attitude that prevails. Not only could this have implications for our beef exports; it is having a serious effect on Japan, and that could affect us. During the recession, the Japanese have accepted voluntary restraints, particularly in motor vehicle exports to the United States. Despite the recovery, these restraints are still in place and the Japanese are accepting the voluntary regime rather than increasing the flow of exports and having the restraints institutionalised in the form of tariff and quota action. Japan is apparently accepting that its growth in share of world trade is slowing down and that its recovery will have to be primarily a domestically based recovery. The obvious consequence of this is that Japan will require less of the natural resources that we provide, or at least, an increasing amount, but at a much slower rate of increase.

Australia is confronted with a world different from that which went into the recession. The next growth phase will be built around high technology rather than steel and ships. High technology is not a big consumer of iron ore, coal and bauxite. As Japan moves more into the high-tech area and countries such as Korea, Taiwan and Hong Kong take over Japan's role in the heavy, basic resource consuming industries such as steel and shipbuilding, so Australia's markets will tend to move away from Japan to those countries.

Australia's continued growth will depend to a large degree on increased sales of our minerals to these countries. These countries in turn depend on increasing sales to the United States and Europe. It is difficult to see Australia dramatically increasing agricultural exports because there are finite limits in that area that do not really apply to most of our mineral exports.

Overlaying all of those concerns is the direction that world trade will take over the next several years. Perhaps critical to this is the position of the less developed countries. It seems most likely that until the debt problem of the less developed countries are resolved those countries will have to restrain their imports from the developed world. This will delay the movement out of recession in the West, particularly western Europe, where exports to lesser developed countries are vital to reverse the negative growth experience.

High real interest rates lead to a strong dollar, which discourages exports and encourages imports, so that the United States will run a massive trade deficit. The benefits of this to the rest of the world are offset by the flow-on effect of high United States interest rates, which dampen recovery in other countries. Similarly, the strong protectionist feeling in the United States will have a restraining effect on the growth of world trade as countries bid up their own interest rates in order to stop funds flowing out to the United States. These higher interest rates are counterproductive to domestic economic recovery and increased growth.

The importance of the United States economy is all pervasive. But its effects at the moment are confusing. No doubt, there is strong domestic recovery but interest rates in real terms are very high and are likely to go higher as the Federal Reserve Board attempts to slow down the rate of growth of the money supply. The message for Australia should be clear. Despite many favourable signs , our economic recovery may well be further down the track than we at present imagine. Our recovery depends more on developments in Japan, and Japan depends heavily on what happens in the United States and Europe. It seems clear that the United States recovery may not be immediately beneficial to Japan and that European recovery is well behind that of the United States.

The bleak outlook for many lesser developed countries will tend to dampen trade growth even further. Japan and Europe are looking at much slower recovery and, in Japan's case, the recovery is looking more and more like a domestically based recovery not relying too heavily on exports. In Europe, the Commission of European Communities is anticipating a growth rate of 0.4 per cent for 1983, although the second half growth should be at an annual rate of 2 per cent.

Australia must therefore concentrate rigorously on recovering international competitiveness and getting its own house in order. This will enable Australia to share in what recovery there may be in the short term and to be well positioned for major world expansion if and when it comes. If we do not follow this course, Australia is condemned to mediocrity, lost opportunities and declining relative levels in our standard of living. This Budget does not come to grips with those realities.

Proposed expenditures agreed to.

Department of Home Affairs and Environment

Proposed expenditure, $152,989,000.

Department of Territories and Local Government

Proposed expenditure, $141,997,000.

Department of Sport, Recreation and Tourism

Proposed expenditure, $43,600,000.