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Tuesday, 24 March 1987
Page: 1381


Mr HUNT(3.34) —This matter of public importance is on the business paper today because of the coalition's deep and growing concern about the state of the rural economy, about the fortunes of farmers, which are dwindling day by day, and about small enterprises generally, particularly in regional Australia. Interest rates and inflation are the two most destructive forces operating in the Australian economy today, destroying our competitiveness as a trading nation. The Minister for Primary Industry (Mr Kerin), to his credit, has admitted it not once but several times. The Prime Minister (Mr Hawke) has more recently admitted it but only told us that there would be no early relief. The Government is not showing the determination in budgetary and wages policy to reduce interest rates substantially or to compensate those sectors most at risk, except those paying off homes at a subsidised interest rate of 13.5 per cent. I remind the Minister and I remind the House that some farmers and some small businessmen throughout Australia are paying over 20 per cent in order to keep their businesses operating.

The Government, in the pursuit of its economic strategy, is placing at risk the viability of farmers and small businesses in the rural communities and placing at risk the hopes of those prospective home buyers. There is a farm and small business crisis throughout Australia. Nowhere is it more obvious than in the wheat belt regions. The reasons are simple enough: Firstly, world commodity prices are at an all-time low for wheat and grains; secondly, our real interest rates have been and remain at an all-time high; and, thirdly, the farmers cannot go on carrying the burden that is being imposed upon them by the Government in respect of interest rates and government-imposed charges.

The farmers, with 70 per cent of their production sold on overseas markets, are unable to pass on those costs. Therefore, they are carrying the burden of near record high interest rates three to four times higher than those of their competitors; inflation at almost 10 per cent, which is four times higher than that of most of their competitors-in the case of Japan, for instance, it is ten times greater; wage increases which have accelerated at a rate of 60 per cent higher in the last three years than those of our competitors; and, of course, the direct and indirect effects of the high fuel excise regime, the interception by the Government into the fall in lower world oil prices.

On top of this we have the fringe benefits tax and the capital gains tax. People who are looking for reasons why the J-curve has been slow to arrive need look no further than the continuing high interest rates. The high interest rates that have been in this country since the devaluation started have not been conducive to investment. We are experiencing the worst balance of trade deficit in our history and one of the worst in the Western world. Work practices exist in this country that do not exist anywhere else in the world, and this is contributing to our low productivity. However, our interest rates are the critical issue. The Economic Planning Advisory Council at the weekend hit the right note. I will quote from its report:

. . . there remains a real risk that sustained high interest rates will constrain business investment to the extent that industrial activity and productivity growth will be inadequate to sustain a reasonable rate of economic growth over the medium term.

This was said last year at about the same time. It was said by the Secretary to the Treasury last February that the Government has not moved to take the pressure off the monetary supply control mechanism. The worst hit victims of high interest rates are the capital intensive export sectors, the farm, the mining sectors and small business, which are vital to our balance of trade and employment opportunities.


Mr Beale —And home owners.


Mr HUNT —And home owners, as the honourable gentleman has rightly interceded. The overseas debt has accelerated from $36 billion in 1983 to $101 billion in September 1986. The domestic debt has reached $150 billion. Our balance of trade deficit will be in the vicinity of $13 to $14 billion. We have lost the AAA loan rating for the first time this century. We are saddled with the highest taxing, highest spending Government since the last world war, a government which has surpassed even the ugly spending record of the Whitlam Government. Let it be understood that in the seven years of the Fraser Government the average level of expenditure increased at 2.2 per cent, but since this Government has been in office it is going at just under 8 per cent. It is a shocking legacy that the Government is leaving in this country for our children.

The National Farmers Federation, towards the end of the last year, attempted to make a constructive contribution to the debate and attempted to persuade the Government to adopt policies to overcome the problem, but Mr McLachlan, the President, was kicked out of the Cabinet room. It was a blueprint for cutting interest rates, spending and inflation. The report is there for the Government to read. I would like to table the report because I think that everybody in the Parliament and everybody generally should read it.

Leave granted.


Mr HUNT —It is a report that the Government should study. I think that the Minister for Primary Industry, who is at the table, has read the report 100 times but he cannot convince his colleagues.


Mr McGauran —He is not convinced himself.


Mr HUNT —Probably not. The report re- commends taking pressure off monetary policy and achieving a more rational balance between government spending, wages and monetary policies. The Prime Minister and the Government blame the Fraser Government; at times it blames the Menzies-McEwen Government; and it blames the world. After four years of wages indexation, excessive government spending and a disproportionate reliance on monetary policies to prop up the Australian dollar with extortionate interest rates, the Hawke Government has all but wrecked regional Australia. Nowhere is this more obvious than in the important wheat belt where farmers are struggling for their financial lives. This Government has so far succeeded in quarantining our shocking economic problem to small sectors of our community-small in number but vital in the national economic output.

The majority of Australians are unaware of the problem. They are protected from it, at least for the time being. They are protected by the indexed wages system, with the dollar propped up to sustain various forms of wage indexation. Firstly, we had the wages accord; now we have the two-tier wages system, which is really indexation by another name. The economic crisis in Australia is quarantined, to a large extent, to farmers; small business; new home buyers; export industries and regional areas. However, in the longer term every Australian will suffer from the external and domestic debt loads that are bearing heavily on that sector of the community.

The cereals industry is in major crisis. Fifty-three per cent of growers in my own State of New South Wales are at risk. That is not something that I have concocted; that comes from the report of the Bureau of Agricultural Economics. The average wheat grower income at $23 a week is nothing less than a frightening spectacle for many families. One grower in four will suffer a net income loss of at least $27,000 this year, and one in four will face an interest bill of at least $37,000 this year.

Every effort is being made to encourage the European Economic Community to stop its domestic subsidy policies and predatory trading practices. I give the Government some credit for what it has been able to achieve so far in getting agriculture on the agenda for the Multilateral Trade Negotiations. The Government cannot do much more on that front. There will be no immediate relief to this economy or to those sectors of the community from that effort. The Government cannot go on blaming other countries for our own crisis. I seek leave to have incorporated in Hansard a document which shows the relative changes in the Australian interest rates compared with those in the United States.

Leave granted.

The document read as follows-

PRIME LENDING RATE

(Per cent)

Year

Australia

U.S.A.

Differential

1965 ...

6.5

4.54

+1.96

1966 ...

6.6

5.63

0.97

1967 ...

6.7

5.63

1.07

1968 ...

6.7

6.31

0.39

1969 ...

7.0

7.95

-0.95

1970 ...

7.6

7.91

-0.31

1971 ...

7.7

5.72

1.98

1972 ...

7.4

5.25

2.15

1973 ...

7.4

8.02

-0.62

1974 ...

10.3

10.80

-0.5

1975 ...

11.2

7.86

3.34

1976 ...

10.9

6.84

4.06

1977 ...

11.0

6.82

4.18

1978 ...

10.9

9.06

1.84

1979 ...

10.6

12.67

-2.07

1980 ...

11.4

15.27

-3.87

1981 ...

13.6

18.87

-5.27

1982 ...

15.8

14 .86

0.94

1983 ...

14.9

10.79

4.11

1984 ...

14.4

12.04

2.36

1985 ...

16.4

9.93

6.47

Columns 1 and 2 compiled at request by the statistics group of the Legislative Research Service.


Mr HUNT —I thank the House. The document shows that, between 1965 and 1972, Australia's interest rate was not 2.5 per cent more than that in the United States; in the Whitlam period, it was 4 per cent above the United States rate; in 1981, it was 5 per cent less; in 1985, it was 6 per cent more; and today it is 10 per cent higher than the United States prime rate. Already, the United States Agricultural Attache, Mr Jim Parker, has told the Government to put its house in order. I think that we have reached a stage where we cannot go on waving our gnarly finger at other countries and asking them to change their economic and trading policies while we do nothing about our own domestic problem.

There has been no real effort to reduce production costs. There are tariffs on direct inputs on all farm machinery, spare parts and chemicals; fuel excise has risen from 6c a litre to 19c a litre; interests rates have been jacked up by 5 to 6 per cent on what they should be, as a result of the monetary policy being applied; and fertiliser costs have been increased by regulated shipping laws which we are committed to reform. Efforts in those areas-if the Government would act-could increase wheat grower returns by $18,000 per annum per farm.

How can we blame our overseas trading competitors when our inflation rate is up eight or 10 times higher than that which applies in the countries of our overseas competitors? How can we blame other countries when our interest rate is three times higher than that of our competitors? How can we blame other countries when the tariffs on our secondary industries are about five times higher than those in the United States and are costing farmers, on average, about $10,000 per farm? There may have been a time when the rural sector was able, and prepared, to carry the cost of tariff protection, but there is no way in which it can do so today, and there is no way it should.

Let us look back to the Fraser period. I often hear the Fraser inflation rate cited. I hope that the Minister will not do so today. When the Fraser Government left office, the inflation rate in this country was very much at the lower end of the Organisation for Economic Co-operation and Development and the industrial nations scales. Our farmers are competing on world markets with farmers in EEC countries who enjoy an effective 160 per cent assistance and with United States farmers who enjoy an effective 100 per cent assistance. Our wheat growers are getting 2 per cent, and they are battling against the high costs of the Government's economic policies. The Government cannot have the best of all worlds-firstly, leaving wheat growers unassisted and, secondly, leaving them to carry a disproportionate share of the cost of its macroeconomic policies.

I call upon the Government to launch a three-pronged approach to the farm problem, especially in the wheat industry which carries an average debt load in excess of $200,000 in New South Wales. That three-pronged approach would involve: Firstly, an immediate action to remove or replace the tariff with bounties on all farm machinery, spare parts and chemicals and to reduce excise on fuel; secondly, the allocation of additional funds to the rural assistance boards to meet the growing need of debt adjustment and interest relief, especially in the wheat industry, for those farmers who are in trouble but have some hope of recovery; and, thirdly, the re-establishment of the farm development loan fund from an allocation of funds from the statutory reserve deposits to provide long term concessional fixed interest rate loans. There is $3.5 billion of bank funds held by the Reserve Bank of Australia in statutory reserve deposits at 7 per cent interest.

In the 1960s, when there were problems in the rural industries, the Liberal-Country Party Government established the farm loan fund from statutory reserve deposits. That has since been abolished. Urgent action is needed. We have seen our farm debt increase from $6 billion in 1983 to $12 billion today, and an interest bill for farmers rising from $780m per annum to over $2,000m per annum. We have seen the disastrous repossession of the tools of trade of farmers at Molong and Moree. Let us face it: Interest rates will not be reduced until there is a balance between monetary, wages and budgetary policies, and they must be evenly applied.

On behalf of the coalition, I put forward the proposition that this country must have a debt crisis strategy meeting between the banks, representatives of State adjustment agencies, farm leaders and the relevant Ministers for the rural adjustment boards. The Minister has so far refused to take up this initiative. the NFF has shown an initiative today in talking to the banks. I call on the Minister to explain why he has not taken positive action to overcome a deep and growing crisis in the sectors that I have mentioned.


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