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Thursday, 26 February 1987
Page: 810


Mr HAWKE (Prime Minister)(3.14) —Before I come to the substance of the matters raised by the Leader of the Opposition (Mr Howard), let me pick up some of the more ridiculous elements of his speech. He puts himself forward in this place as a proponent and upholder of the laws of economic arithmetic. He does so at a time when his credibility is entirely non-existent because he still has a $14 billion credibility gap. He has been invited day after day by the Treasurer (Mr Keating) to explain or withdraw some of the commitments which make up that $14 billion credibility gap. He has declined to do so and he has no right to talk about the laws of economic arithmetic.

Most surprisingly, the Leader of the Opposition also says that if he is any judge of the Australian people, they will draw certain conclusions. What is crystal clear is that the Australian people are clearly making a judgment and drawing their conclusions about the Leader of the Opposition. It is no accident, in the light of his purveying of snake oil remedies, that the judgment of the Australian people at this time is that he has the lowest credibility rating in the whole of his period as Leader of the Opposition. It is abysmally low and it is low because the Australian people have made their judgment about him. They simply do not trust him because either he does not understand the laws of economic arithmetic or he deliberately ignores them. I am quite happy in this debate to take the question of the judgment of the Australian people about the Leader of the Opposition and compare it with their judgment of me. Even if the Leader of the Opposition does not know the laws of economic arithmetic, he may know the laws of political arithmetic and be able to make the comparison. When he does he will see that he is repudiated, just as he is repudiated by the majority of those sitting behind him. Interestingly, he made the observation: `There will not be a shortage of people in the Liberal Party to tell this story'. That was the one part of his speech in which he was dead right. Certainly we are seeing no shortage of people in the Liberal Party of Australia to tell the story. What does the Press tell us? It tells us that the Liberals are not satisfied with the people they already have in this Parliament. I believe that the Liberals have a member for Higgins, but we understand that the Federal Treasurer of the Liberal Party has said: `I want to be in the Liberal Party to tell this story because the story that is being told by Mr Shipton is not a properly told story'. So we have the gallup poll asking the electors of Higgins whether they would rather have that representative of the small people of Australia, Mr John Elliott, to tell the story.

Let us get down to the substance of this matter. The Leader of the Opposition accuses the Treasurer and me of misleading the Parliament and the Australian people. He is reported as saying that the document tabled in the Senate yesterday `blows the cover of the Prime Minister's pretence that interest rates are on the way down'. There is no pretence, there is no cover. On several occasions already this session I have had to spell out for the Opposition the role of monetary policy in the current economic environment. As every reasonable person knows, there is a need to cope with a massive task of structural adjustment. The Leader of the Opposition acts as though I take some pleasure in having high levels of interest rates. No politician in his right mind would want for a single day to have an interest rate level that is any higher than it need be. I would like to see interest rates significantly lower. Does he think that I do not understand enough about politics to know that high levels of interest rates are a disadvantage for a government? Of course they are. The difference between the Leader of the Opposition and me is that I will not peddle snake oil remedies, as the honourable member for Boothby (Mr Steele Hall) has claimed the Leader of the Opposition is doing. I will tell the people the story as it is and we will have the policy-including currently a tough monetary policy-which is necessary to deal with those realities.

If the Leader of the Opposition wants another tutorial on the effects of the current account difficulties on interest rates, he can have one. I do not resile one iota from the overall picture which I have been painting of the macroeconomic scene during the past two weeks. The Government's expectations that interest rates can begin to fall this year are based on a thorough and cautious assessment of all the factors which go to make up the total macroeconomic picture. I remind the House of what I said on 17 February. I said:

It is the fact that high interest rates are an inevitable feature of adjustment to Australia's current account difficulties. As much as this Government obviously would welcome lower interest rates, it is quite clear that we are responsible economic managers who, unlike the Opposition, eschew politically expedient quick fixes.

Or, to quote the honourable member for Boothby, `snake oil remedies'. I said:

We have reduced the burden on monetary policy by pursuing appropriately restrained fiscal and wages policies.

I said:

We look to 1987 with a cautious optimism about the economy including a fall in interest rates in 1987, though, as I have said on many occasions-and I repeat on this occasion-the timing of such a fall will be affected by external factors, including what happens to world commodity prices and what happens to international financial conditions and sentiment. It will also depend on the pace at which the current account deficit declines.

I do not take back one word of that statement. As I said, again on 18 February, and I quote briefly:

We acknowledge the difficulties and we have introduced policies which, as I have said and the Treasurer has said, through 1987 will lead to a gradual lowering of the interest rate regimen.

I am not, I repeat, in the snake oil business of trying to put precise dates or to nominate the precise order in which particular interest rates can come down. What I am in the business of doing, though, is to state some plain facts, and I plead with the Leader of the Opposition to listen to these plain facts.

The most fundamental of those plain facts is that, unlike the snake oil merchants, we have the policies to achieve over time a lowering of interest rates. We are not, I repeat, in the business of artificially depressing them, which would result in massive unemployment increases and higher interest rates still as the value of the dollar plunged and interest rates went through the roof. This Government is not about condemning families to the poverty that that sort of approach would produce; nor is it about misleading the Australian people, giving them false hopes or vending snake oil remedies. The plain fact is that we have cut the Budget deficit. The Leader of the Opposition had the temerity to come in here and talk about the lack of political courage of this Government in framing Budgets and in pre-election situations. Let me remind the Leader of the Opposition of the plain, unarguable fact. It is that we have cut the Budget deficit as a proportion of gross domestic product from the 5 per cent that we inherited to about 1 1/2 per cent this year. It is not opinion; it is a plain, indisputable fact. The plain fact is that we as a government have cut the Budget deficit as a proportion of GDP in every single one of our four Budgets.

The plain fact, not opinion, is that we remain committed to continued fiscal restraint and to achieving similar restraint at all levels of government. The evidence of that, if any more is needed, is our commitment to bringing down a further statement in May. That will be backed up by an approach to the State governments and to their funding at the forthcoming Premiers Conference, which of necessity again will be a tough conference with tough decisions flowing from it.

Commonwealth direct funding of States was cut substantially last year. In addition, we negotiated with the States a lower level of gross borrowings on behalf of their authorities. But it must be said, as I have said, that the States have been able to circumvent that constraint to date. We know that they have done that by calling upon their cash balances. It is important for all Australians to understand that important point-that State borrowing levels need to be wound back over time, just as does the Commonwealth Budget deficit.

The plain fact, not opinion, is that the wages policies of this Government have enabled real unit labour costs to decline consistently over these past years. We are becoming tired of, but accustomed to, the misrepresentation of the Leader of the Opposition. He said that Australian industry has become uncompetitive. The fact, not the opinion, is that Australian industry is now more competitive than it has been for some two decades. That is not an opinion; it is a statistical fact. In conjunction with the depreciation of the Australian dollar which has occurred, that level of competitiveness is bringing about a situation in which we are now exporting to markets and types and qualities of products which never before were within the reasonable contemplation of any Australian manufacturer. The plain fact is that the process of adjustment in our balance of payments has begun, and that is fundamentally the key to a sustained lowering of interest rates.

Let me just review some of the evidence for the assertion that adjustment has begun in the balance of payments. Let me take as my premise that the key to longer term adjustments in the balance of payments will be our ability sharply to increase our exports of services and manufactures. Let us look at the facts, not the snake oil observations. Let us look at the simple facts. I note that the value of manufacturing exports, even excluding the irregular exports of aircraft, has increased by 30 per cent in the last seven months compared with the same seven months of last year. Our deficit on services trade-that is, for tourism, shipping, insurance and the like-has fallen 17 per cent over that period, and our deficit on merchandise trade, after allowing for seasonal factors, has fallen by 40 per cent in the past three months compared with the three months to October. On the basis of current figuring, the Government is confident that the balance of payments deficit for 1986-87 as a whole will be somewhat lower than the $14.7 billion figure predicted at the time of the Budget, with a significant fall in prospect for 1987-88, both in nominal terms and a fortiori, of course, as a proportion of gross domestic product.

Those facts, not opinions, provide the basis for our confidence about the future for interest rates in this country. No snake oil remedies, no abuse of economic arithmetic-a listing of plain, indisputable economic facts. That is the basis for the confidence that the Treasurer and I have expressed about the future course of interest rates. I would add that, to hear the Opposition talk, to hear this temporary Leader of the Opposition mouth his gibberish, one would never expect interest rates to fall; but of course those interest rates have in fact already fallen. Let me give the facts again, not the gibberish, not the snake oil nonsense. The facts are that 90-day bank bills are now some two percentage points lower than the 1986 peak in September of that year and the maximum prime overdraft rate is some 0.75 percentage points lower. The Leader of the Opposition has talked about high interest rates. Let me repeat to this House that even current interest rates pale into insignificance compared with the 22 per cent peak for the 90-day bill rate inflicted on this country by the Opposition. It was not within the context of a massive decline in the terms of trade-it did not have that imposed upon it from the outside. That peak of 22 per cent in the interest rate was inflicted because of the incompetency of those opposite. They failed in government; they have failed in opposition-and the failure of this Leader of the Opposition will be a product of his incapacity to understand economic arithmetic and to withstand the forces of political arithmetic on his own side which will soon see him deposed from this position which he has so incompetently occupied since his election.