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Wednesday, 1 April 1987
Page: 1854

Dr WATSON(12.00) —I rise to speak on Appropriation Bill (No. 3) 1986-87 and Appropriation Bill (No. 4) 1986-87, and of course on the amendment moved by the honourable member for Mackellar (Mr Carlton). During debate on the corresponding Bills at a similar time last year I spoke of the incorrect monetary and fiscal policy of this Government and also the lack of incentive provided for business, farmers and families in this country. At the conclusion of that address I quoted the thoughts of the famous historian, Sir Arthur Bryant, on the decline of the Roman Empire. I would like to repeat that quotation:

Rome had grown out of greatness of individual character. It became a community in which individual character counted for nothing compared with an abstraction which proved, in the hour of testing, capable of nothing. By sacrificing the individual to the state the rulers of the Roman world undermined the real virtues which sustained it. They turned active and self-respecting citizens into inert and selfish ones. They discouraged the capitalist from thrift and foresight, the trader from enterprise, the craftsman from his hereditary skill, the husbandman from pride in the soil, the mother from maternity, and the soldier from courage and self-sacrifice. They made the moral shell which protected society so soft that it could protect it no longer. A creeping inertia paralysed everyone and everything.

Sad to say, in my opinion nothing has changed in this last year to make this observation, which was applicable to the Roman Empire and I believe to Australia last year, any less applicable this year.

I wish to address just a few issues, in particular inflation and interest rates. I wish to address those matters not only abstractly but also as they concern my constituents. When the coalition left government the inflation rate was falling, and in fact it continued to fall in the early months of the present Government because of the policies established under the Fraser Government. The fact is that the change in the inflation rate for the quarter ending September 1982 was something like 3.5 per cent. In the December quarter of 1982 the change was 3.1 per cent; in the March quarter of 1982 it was 2.2 per cent; in the June quarter of 1983 it was 2.1 per cent; and, in the September quarter of 1983 it was 1.6 per cent. The underlying inflation rate increase, as shown by the Treasury in chart No. 3 of its March 1987 Round-up, peaked in June of 1982, at a little over 3 per cent per quarter, and continued to fall in September 1984, to a little over one per cent. In addition, the quarterly increase in average weekly earnings slowed from a 2.4 per cent increase in September 1982 to an 0.1 per cent increase by June of 1983. Nominal and real labour costs in the non-farm sector were falling when the coalition left office. The wages pause had all these positive effects, and it was these effects which in fact provided the foundation for this Government's job creation program.

The current situation is substantially different. In the March quarter of 1986 the inflation rate rose by 2.3 per cent. In the June quarter of last year the increase was 1.7 per cent, in the September quarter it was 2.6 per cent, and in the December quarter it was 2.9 per cent. For the year as a whole, the increase was 9.8 per cent. The inflation rate in Australia compares extremely unfavourably with the inflation rate of our major competitors. Countries such as West Germany and Japan actually have deflation, a negative inflation rate. The inflation rate in the United States is a little over one per cent; in France, it is 2 per cent; and, in the United Kingdom and Canada, it is something like 4 per cent. In the Organisation for Economic Co-operation and Development as a whole inflation is just over 2 per cent. The gap between Australia's inflation rate and the rates of our competitors continues to increase and remain substantial.

Even the latest Economist in the Parliamentary Library, dated 14 March, shows that wholesale prices in Australia continue to outstrip the wholesale prices of our competitors. In many countries wholesale price have in fact been decreasing-they have been negative. But for the three months covered in the report in the Economist it was over 10 per cent in Australia. No one else in the Western world comes close to that increase in wholesale prices. It is no wonder that the expectations of increasing consumer prices continues when we have wholesale prices in Australia outstripping wholesale price increases in other countries.

Why is this increase in prices important? It is important to our families because every time parents go to a supermarket they find that there are increases in the prices of the goods they are buying, and when their wages are not increasing it simply means that their living standards are being eroded. Increases in prices also feed into our business and farming sectors. How can we compete with other countries producing farm products when we cannot control the inputs into our costs of production. If we cannot control costs, we simply will continue to be uncompetitive. Expectations of inflation are important not only because they erode the living standards of our country and reduce our competitiveness but also because they form the foundation for future interest rates. In the latest Economic Planning Advisory Council paper, No. 26, entitled `Interest rates and economic adjustment' the following summary is made:

The rise in real interest rates in Australia over the last decade has been strongly influenced by corresponding trends in the major industrial countries.

However, interest rates in Australia, especially at the short end, have risen to levels above those in most other countries, both in real and nominal terms.

It goes on to say that there have been three principal reasons for this. The first of those reasons is exceptionally important-market expectations of continued higher inflation in Australia. As I remarked in Parliament the other day, the Managing Director of the National Australia Bank, Mr Nobby Clark, predicted that inflation will be something like 10 per cent next year. Nominal interest rates, the interest rates which we pay for our housing loans, the interest rates which every Australian pays for his car loan or personal loan for a washing machine, a drier or a refrigerator are determined by not only the real interest rates which the honourable member for Fraser (Mr Langmore) spoke about a moment ago but also a combination of the real interest rates and the expected inflation rate. If our real interest rate remains constant-and over history it has remained pretty constant-the difference between inflation rates in countries is also reflected in interest rates. In other words, the real interest rate remains constant, as the honourable member for Fraser said, between many countries, but the differences in our nominal rates between Australia and other countries such as the United States of America is directly related to our expected inflation rate. We are paying more interest because the Government is not adopting policies which will reduce our inflation.

I refer again to the latest Economist magazine. Tables on inflation rates and interest rates show that Australian interest rates are the only one which are in significant double digits. Interest rates in Australia for corporate and government long term bonds are around 15 per cent, whereas in most other countries they are under 10 per cent. Switzerland has interest rates of less than 5 per cent. West Germany and Japan have interest rates of under 6 per cent. A moment ago I referred to the inflation rate in West Germany and Japan as being negative. So there is a direct correlation between the inflation rate in Australia and interest rates. I might add, of course, that the cost of money to businesses and farms, being so high, feeds right into the costs of production of our goods. Along with inflation, which affects many other kinds of inputs to the production process, interest rates reflect capital input costs and these also make us less competitive.

Let me refer to my own electorate for just a moment. Interest rates, particularly housing interest rates, have been affecting Australian families for over 15 months. At this time last year I referred to a paper in my own area, the Albert and Logan News, which on 19 February 1986 had the headline `Own home dream now a nightmare'. In that article the journalists were reflecting on the problems that young couples were having and the fact that in my area there were two repossessions a week due to people being unable to meet their interest payments. Nothing has changed in the last 12 months. In fact, repossessions are getting greater.

I received a call from a lady in my electorate who referred to her problems and asked what I could do about them. Unfortunately, given the Government's policy, there is very little any back bencher can do about such problems. This lady's husband had lost his job because the firm he was working with had gone out of business; it could not afford to pay its capital costs. But he did not go and bludge on the Australian community. He went out straight away and got another job and in doing so he took a cut in salary from $1,400 a month to $1,050 a month after tax. Interest rates on their house had gone up and their house payments had gone up from $370 to $550 a month. By the time they took transport costs into account-the husband had to travel to work-electricity, telephone, rates and health care they were left with $30 a week for food.

Mr Braithwaite —A severe reduction in the standard of living.

Dr WATSON —One heck of a reduction in the standard of living. High interest rates are literally taking the food out of the mouths of our children. It is about time that this Government and this Treasurer (Mr Keating) understood the human suffering that they are heaping upon the Australian community.

I wish to conclude with some reference to another item that came to my attention. I notice that about another $9m is being appropriated for administrative and salary payments in the Department of Social Security. I recently wrote to the Minister for Social Security (Mr Howe) about a war widow in my electorate. Because of a social security change introduced on 1 November 1986, this war widow's pension became regarded as extra income when social security allowances were being assessed. My constituent had been looking for a job when she became ill. She was unable to attend a job interview during that period and lost her entitlement to benefits. They were not restored when her health returned. The woman concerned had been nursing her husband on a full time basis for the previous 10 years. He died from a disability which was associated with his war injuries.

When I was growing up in Australia I understood that war widows were to be rightly regarded as special people in Australia. Their pension has been regarded as some recognition of their husband's sacrifices. It has always been recognised as compensation, not as some form of income support. Unfortunately, the Minister in the last week has rejected the claim. I will read from a section of his reply. I will refer to the lady as Mrs X. It states:

I can appreciate Mrs X's distress at the loss of a significant portion of her former income through circumstances beyond her control, namely her unfortunate and untimely injury, but I am unable to vary the decisions already taken.

It may be of interest to Mrs X that her war widow's pension is $24 per fortnight more than the normal social security widow's pension which is an alternative in her circumstances.

In other words, this woman's sacrifice for 10 years in looking after her husband, which could, of course, have been paid for by the taxpayer, and this man's sacrifice for his country, was worth $24 a fortnight. Ten years of her sacrifice was worth 50 per cent of a grant to the Wild Women Surfboard group. This Government has no compassion. It has no understanding or appreciation of the sacrifices made by our men and women. Rather, it is driven by ideological zealots such as the Socialist Left Minister for Social Security (Mr Howe), the colleague of the Minister for Local Government and Administrative Services (Mr Uren), who is at the table. It is driven by radical zealots to alter radically our value system and to tear down those things that have made Australia the great country she is. I can only refer again to the quotation that I started with:

They turned active and self-respecting citizens into inert and selfish ones. They discouraged the capitalists from thrift and foresight, the trader from enterprise, the craftsman from his hereditary skill, the husbandman from pride in the soil, the mother from maternity, and the soldier from courage and self-sacrifice.

That quotation about the decline of the Roman Empire was true for the Roman Empire and, as I said last year, it reflected the malaise that was overcoming Australia. I am sad to say that, one year hence, it is in my opinion an accurate reflection of what this Government is doing to our country.