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Wednesday, 30 May 1984
Page: 2123

Senator Dame MARGARET GUILFOYLE(11.33) —The Senate is debating a group of Bills, some of which relate to the supplementary appropriations for the present year and others which give the Government the Supply that it will require until the passing of the Budget in August of this year. I do not wish to talk at length or in detail on any of the matters in the Bills. I want to use this opportunity to address my remarks more to the Supply Bills than to the Appropriation Bills. I want to talk about the climate in the pre-Budget session in which a number of attitudes are being expressed throughout the community with regard to the structure of the forthcoming Budget. I think it is fair to say that there has been a lot of public discussion about this subject. I am interested in the views that have been expressed by our economics writers and by those who have been consulting with government through various associations. It seems to me that if we are to use the word 'consensus' we can say that there is a consensus of concern about the level of the deficit in this year's Budget. Press editorials and headlines indicate that there is a vicious deficit circle, which is a problem for any government, particularly in the current economic circumstances.

I think that if we look first at what some associations have been saying and then draw those views together it is possible to say that there is a concern that the deficit will present difficulties in respect of interest rates, private investment confidence and things of that kind. Of course, these matters are absolutely fundamental to the health and growth of our economy. This critical question, of course, lies with the Government as it casts its Budget. However, we need to look at the cumulative effect of deficit budgeting. The Australian newspaper produced figures earlier this month which indicated that the total national debt was about $76 billion. This was translated into figures which showed that it represented about $5,000 for every man, woman and child in this country. Repayments of past government borrowings will, in the next financial year, exceed for the first time total expenditure by, for instance, the Department of Defence. The rapid growth in public debt will ensure that Australia has relatively high and unnecessary interest rates in the years to come and make it very difficult for governments to cut taxation significantly in the future or undertake programs which they might consider desirable or essential to improve the standard of living of many Australians. Certainly, the level of interest rates will make it difficult to stimulate economic activity for long term growth.

The Australian indicated that the total net public debt will be about $76 billion in 1983-84 and about $105 billion in 1985-86. Public debt this financial year will equal about 41.5 per cent of total gross domestic product compared with an average level of 32 per cent to 25 per cent between 1975 and 1982. It is thought that by 1985-86 it will be around the 50 per cent mark and that is a high level in any terms when one looks at the economic activity of a country such as Australia. This, of course, leads to expenditure on public debt interest , which will amount to about $6,200m or 3 per cent of gross domestic product, while expenditure on defence is expected to be less than $6,000m in the next year. So that gives some basic comparison between what we must do to fund the deficits in our Budget. This leads people who are interested in commerce or trade to say that if progress is not made now to reduce the structural deficit we will become increasingly locked into a vicious circle of large deficits, high rates and high taxation.

As I said, I have taken some interest in the different comments that have been made during the pre-Budget period. Some of those comments relate to the effect that the Budget deficit will have on the economic situation and our exports. It is suggested by Des Keegan, an economics writer for the Australian, that there is strong evidence that we face a possible exports collapse next year and a current account deficit sufficient to precipitate a run-down of foreign reserves and a flight of capital. He wrote in May of this year that, contrary to the usual trends, after two years of recovery and a probable couple more, raw materials have collapsed. He said, as other writers and commentators have said, that Australia depends on primary industry and mining for about three-quarters of its export earnings and that in most cases these are not faring well and the problems are not short term. He said that the oil shocks of the 1970s, the growth of surplus farm produce in the European Community and Japan's strategic buying success in commodity markets are fundamental changes which have threatened many Australian metals and foodstuffs with lower prices and, in some cases, declining volumes in terms of export possibilities. He further said that iron ore miners with installed capacity of 45 million tonnes were cut back to exports of less than 30 million tonnes per year by the oil shock. He pointed out that this has picked up somewhat. Above all, I think it is fair to say that our exports could experience some difficulties in the future and that these difficulties certainly do not need to be made more extreme by the size and financing of deficits and the effect that they can have on our currency and other relative matters.

Yesterday the head of the Broken Hill Proprietary Co. Ltd called for a cut in the deficit. He again made the same point about effects of the financing of the deficit on interest rates and on exports in particular. In this pre-Budget situation I think it is very timely to look at the indicators such as those that were given by the Australia and New Zealand Banking Group Ltd in its March bulletin. It stated that a vital aim of government policy must be to avoid upward pressures on the underlying trend in interest rates during the present critical phase of economic recovery. To this end, the direction of fiscal policy must be to reduce public sector demands on the capital market.

A further comment was made by the ANZ Bank that, apart from seasonal increases in the June quarter, given appropriate policies it is possible that an uptrend in interest rates can be avoided, barring unforseen developments overseas. Beyond the June quarter, critical factors determining interest rate trends will be the level of public sector borrowing, private sector demand for funds and inflationary expectations. The combination of a diminished contribution to monetary growth from the overseas sector and an expected reduction in the size of the Federal Government's 1984-85 Budget deficit will help to curtail the size of the Federal bond selling program. A significant reduction in the total public sector borrowing requirement, particularly as a result of a lower Federal government deficit, would appear to be a key requirement for a favourable interest rate trend, especially in an environment where the private sector's demand for funds is strengthening.

I will quote further from other bodies such as the Council of Small Business Organisations of Australia. In its April review it said that, if the recovery is to continue, consumer and investment spending must be encouraged and there must be no conflict between public and private sector borrowing. It said that, as far as the overall picture is concerned, we are still beset by inflation far in excess of that of our trading partners, interest rates are still relatively high , wages continue to escalate, unemployment is still running at about 10 per cent and seems likely to worsen, private investment shows no signs of picking up and public indebtedness has grown apace. It is also said that under those circumstances, a tight Budget is imperative. The deficit must be significantly reduced and the money supply contained to try to push down interest rates and inflation. In a Budget submission, the Council of Small Business Organisations expressed the view that the overall Budget deficit should not exceed $7 billion as the first stage of an overall strategy commitment that will provide substantial reductions over a five-year period to the point where we start to live within our means and the huge public debt the community now carries and has to service can be significantly reduced.

The Business Council spoke about the public sector finances and the total deficit. It made the point that the chief worries about large deficits are that the Government will either fail to finance them sufficiently by borrowing, thus printing money and fuelling inflation, or finance them in sharp competition with the private sector, thus crowding out private investment and forcing up interest rates and the exchange rate. It said that the current and prospective government deficits at all levels are now very large. In all of what I am saying, it is incumbent upon State governments, as well as the Commonwealth Government to keep in mind the indebtedness that arises from their programs and demands. A cumulative situation can be aggravated from a number of different sources. The total of the deficit at all levels of government is very high and, as mentioned in the figures that I quoted earlier in comparison with the gross domestic product, we should be concerned about it.

The Business Council has spoken directly with the Government on these matters as have many of the other organisations from which I have quoted in this speech. However, I was interested in a Department of the Treasury bulletin entitled ' Round-up of Economic Statistics' released in May. It points out that retail sales weakened in the March quarter. It went on in some detail to give the figures of that activity and mentioned the confidence of the community as reflected in retail sales. Whilst one can look at some other areas-for example, motor vehicles-in which there has been a strong rise in activity, one does not find that there has been a rise in retail sales if one takes into account the increase in the consumer price index and the affect that that has on relevant prices. Of course, that was one of the concerns of the Council of Small Business Organisations to which I referred a little earlier. That same Treasury bulletin of statistics for the labour market mentions the unemployment situation and the last recorded employment figures. The bulletin gave comparisons between what had occurred in the previous month and what had occurred in the comparable period in the previous year. It points out that unemployment has not improved in the sense that we could see any improvement in the figures for long term permanent jobs. There has been an improvement in the figures for part time employment which is reflected in the figures. However, I think everyone would acknowledge that the overall prognosis for our employment position is not one that gives us great comfort. It shows that there has been an increase in unemployment and, whilst the participation rate may have improved somewhat, that there are still far too many people who could be productive and useful and who desire to join the work force, in particular with full time permanent jobs and not jobs that have been created on sometimes a temporary basis and sometimes a part time basis by some of the employment programs.

That leads me to say that, with all of this serious debate about the development of the Budget at the present time, the community needs to be concerned about the size of the deficit. I think it is incumbent upon those who look at government expenditure to recognise that there are very strong structural reasons why budgeting is difficult. There are lots of areas where ongoing programs require additional finance. The options are very often narrow when one is working to produce a budget. It seems that the consensus of opinion around the country is that it is very important that the level of the deficit does not make it more difficult for a realistic recovery and it is not one that can allow us to believe that some illusory programs and some illusory benefits will be the way in which we see the recovery underpinned into the future.

I have referred those remarks to the Supply Bills and pointed to the many experts and business organisations which have drawn the Government's attention to their reading of the economic situation and their leaning towards a fairly tight Budget so far as the deficit is concerned. That would be more appropriate for Australia in this coming year. An increase in the level of activity would allow for confidence in investment to improve and above all would assist our export earnings. Export industries would be competitive.

The Audit Amendment Bill which is included in this package concerns charges through the Department of Finance which I welcome. There is no need for me to speak in any detail about that matter. It is part of a package of convenience and it has the support of the Opposition. I hope that, in this run down to the Budget session, we are very aware of the need of the Australian Government, on behalf of the Australian people, to watch very carefully the position in which it places us as we seek to have an economic recovery and a return to employment for those people who have, at present, very limited prospects for regular and permanent employment in the future.