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Tuesday, 11 September 1984
Page: 806


Senator Dame MARGARET GUILFOYLE(5.25) —The Loan Bill 1984 provides for the financing of the prospective 1984-85 Budget deficit. As is usual, a Bill of this kind is introduced at the time of the Budget. As expenditure from the Consolidated Revenue Fund cannot legally exceed the moneys available to it, there is a need to seek authority to finance certain expenditures from borrowings to the extent that amounts appropriated by the Parliament for expenditure from that fund exceed estimated revenues. Under existing standing authorities some $2.7 billion of expenditure can be charged to the Loan Fund, leaving a short fall of some $4 billion for which separate funding authority is required. The Bill which we are discussing this afternoon seeks authority to borrow moneys accordingly.

It is timely, when dealing with this companion Bill to the Appropriation Bills, to look at the structure of the Budget which this Bill seeks to finance. It is notable that public debt interest in 1984-85 will rise by about 29 per cent to over $5 billion. The deficit this year of some $6.7 billion will add a further $ 3 billion to $4 billion per year to the interest charged. These figures relate to Commonwealth borrowings only. However, the Commonwealth-State public debt interest bill will rise to something like $9.7 billion this year, which is more than the cost of the items in the Budget. It is noteworthy that about two-thirds of all the new borrowings we make will be used to pay interest on previous and current borrowings. Something over 60c in every dollar that we borrow is used for repaying interest. That is why it is appropriate that we should look at the structure of the Budget, the deficit and the indebtedness of Australia.

The Treasury Papers for this year estimate that, given current programs, next year's deficit will be something over $8 billion. I think the Government has shown it is not prepared to reduce the deficit during an economic upturn. We have heard a lot said in recent days about the growth of the economy and the economic upturn, yet the structural deficit in this year's Budget has actually increased. So it is probably appropriate to suggest that when a government will not reduce the deficit during an upturn in the economy it will hardly reduce the deficit during a downturn. The predictions of a downturn in, say, 1986 mean that we are looking at a very solid level of indebtedness. It does not look as though that indebtedness will be reduced and we cannot be confident about the level of interest that has to be paid to service these debts.

We have heard public claims that there may be no problem in financing a deficit of the magnitude of the one this year and that interest rates are falling. However, the fact is that short term interest rates have fallen because of the artificial manipulation by the Government through the Reserve Bank system. The Government is attempting to engineer interest rates so that housing loan interest rates will fall between now and the end of the year. This will have dramatic effects in the June quarter of next year. The long term government bond rate today is higher than it was at the time of the last tender, reflecting concern within the money market that this Budget is not all that it might be in terms of economics, the balancing of indebtedness and the need to fund indebtedness in one way or another.

With those few words I have made the point that the Budget, with which this Bill is concerned, has provided for a high deficit which will add to the overall public debt and cause higher taxes in years to come. When one takes into account the need to fund the deficit and pay interest on public debts one realises that it is very difficult in future years to get the sort of structure in a Budget that one might otherwise feel is desirable. I do not think it is unfair to say that this Budget has been planned with the prospect of there being an election this year based on this Budget, and massive increases in taxation are ahead if the present Government is returned at the next election. This has already been publicly proclaimed by at least one Labor Minister, the Minister for Science and Technology, Mr Barry Jones, in his noteworthy comment about a Budget being designed for an election and after the election the Government is able to make whatever adjustments it needs to the structure of it.

Budget outlays will represent over 31 per cent of the gross domestic product. That is a 13 per cent increase, and a record for public expenditure. It is the first time in the last decade that the 30 per cent level has been punctured. From something over 28 per cent in 1974-75, at the height of the Whitlam Government, it is now at the all-time high figure of 31 per cent. Budget receipts will represent something over 28 per cent of the gross domestic product . That is a large increase, and again the figures are up on those of a decade ago. So it is a Budget with very high expenditure, very high revenue projections and also a very high deficit.

The restructuring of the tax scale was proclaimed to be some sort of innovation that would give tax relief but the new five-step tax scale will effect a 23 per cent increase overall in personal tax collections this year. The Government has instituted a 10 per cent sales tax on wine and a 20 per cent sales tax on very low alcohol beer, and has provided for spouse rebates to be extended to de facto couples. It has decreased assistance to the export industry by something over 20 per cent and it has indexed pensions and benefits, including unemployment benefits, which it increased by some $2.50 a week for singles and $4.20 a week for couples to take account of the changes made as a result of the Medicare levy . Those measures are still short of fulfilling many of Labor's election promises to increase pensions and to give tax relief in terms of the promises made earlier because although tax cuts have been proclaimed and there is certainly a reduction in tax for a large number of taxpayers, of something over $7 a week on a scale that reduces as income increases, there will be a 23 per cent increase in tax collections. So that is the delusion of tax relief. At the same time as that delusion has been put forward, hundreds of thousands of Australians have been thrust into higher tax brackets as a result of the policy of indexing wages but not indexing personal taxes.

The whole range of tax rebates abolished by the Labor Government has added to the average family's tax burden. The special income levy for Medicare has added to the costs of many families and again changes in the Medicare ceiling have added to the cost of many. So at the same time as we see increases in a variety of taxes and charges, we have the proclamation that there is tax relief. It is simply a reduction in the additional tax being charged through the Budget.

If the Government structures the whole of its economic outlook on its prices and incomes accord, as it claims it does, it is important to look at the consequences this will have for economic growth and for the prospects that lie ahead because if economic recovery is too strong the accord itself could be in peril. In Budget Statement No. 2 the Treasury warns that the accord may be worthless if economic growth is sustained and there are pressures for a share of that economic growth, with further consequent pressure throughout the community on prices. This will create difficulties for those who cannot claim their share of the economic recovery. Another year of strong growth in activity and profits might place considerable pressure on both wage restraint and other aspects of the accord. That is not an unfair statement in view of the importance that will be placed on the accord in the forthcoming year. Already some union pressure seems to be building and according to people such as Mr George Crawford, an executive member of the Australian Council of Trade Unions, the Budget puts pressure on the accord. No doubt the pressure will become apparent after the election is held because predictions of wage increases when related to predictions of consumer price index increases show that a drift of one or two per cent and maybe more is expected, depending on the industrial pressure that arises.

So we have a Budget that may still be affected by pressures from various parts of the community for a greater share of the growth in the economy, with very little improvement in the level of unemployment. Predictions in the Budget still allow us to say that something over 8 per cent of the labour force has no prospect of real employment in the near future, and the only real winners in the Budget will be the unions, the people who work in the Public Service and those who can in some way find protection from the difficulties of unemployment and the lack of growth in real jobs that could reach all sectors of the community.

Administrative costs in the Budget have had a sizable increase of something over 9 per cent. This makes Public Service expenditure a very high percentage of Budget outlays. It is the highest proportion since the 11 per cent rise in the last year of the Whitlam Government. This year the increase in Budget outlays for public administration is more than that, reaching 14 per cent. That reflects one part of the Government's priority. There is strong growth in the public sector and in public administration, whereas there is very little opportunity for the same sort of growth in the private sector where the jobs can reach out to all sectors of the community. Predictions throughout the Budget for unemployment relief are not high. They are not ones that give comfort either to the Government or to those in the rest of the community who would wish to see a growth in jobs and a reduction in the high unemployment figures that have been with us for far too long.

It is probably also fair to say that there is little incentive in the Budget for small businesses, despite promises that were made to them. No real acknowledgment is given to the fact that small business employs 60 per cent of the Australian work force. It is in that sector that one would want to see investment confidence, confidence in employment and growth in activity. Yet when one looks at the flow-on of full wage indexation and the mounting labour on- costs that have in no way been curtailed by this Budget, along with the increasing burden of tax and the bureaucratic difficulties caused by many of the regulatory forces that exist in present Acts, it has been made more difficult for small business to grow and prosper.

Business will also be hit by the abolition of the investment allowance, and the pressure on wages and the consequent difficulty to attain competitiveness. That is reflected in the present lack of investment confidence and lack of growth. Business, of course, notes that the Hawke Government is spending at three times the rate of the Fraser Government. It is under pressure from many of its own members-members of the Australian Labor Party-to spend even more in the belief, that more government spending is the road to recovery. I think that business, looking at the rate of growth in the last two Labor Budgets, has reason for concern. This growth in the public sector philosophy has been tried before and it is seen as being difficult for business. There seems to be no attempt by the present Government to curtail that or to look at it in terms of achieving any realistic reduction.

I believe the growth that we see in many areas of government is noteworthy. Changes have occurred in a whole list of areas from 1982-83 to 1984-85. The percentage change in the area of health is 80.5; labour and employment, 78.5; housing, 69.1; public debt interest, 65.8; culture and recreation, 40.5; administrative services, 38.2; law and order, and royal commissions, 34.2; foreign affairs, 31.7; social security, 27.9; defence, 21.7; education, 19.5; and transport and communications, 5.6. In the area of industrial assistance one finds a reduction of 5.1 per cent and in urban and regional development and environment a reduction of 27 per cent. Therefore, in terms of the percentage share of the total Budget outlays, the areas of defence, education, transport, industrial assistance and general and scientific research have all declined, while the welfare, job creation and redistributionist areas of government expenditure have grown dramatically.

The implications of these spending priorities are important. Assistance to the productive sectors of the economy, especially those long term activities which have been the subject of Labor's highly publicised national strategies-for example, education, and general and scientific research-have all fallen in priority and some have suffered real decreases in assistance. The Government is raising tax primarily to increase its spending in non-productive sectors of the economy. That is one of the difficulties to which we point as we deal with this Loan Bill which is seeking to fund the deficit.

The reaction to the Budget was somewhat mixed. I was interested in one of the Age reports on 22 August showing that the latest gross domestic product figures released by the Australian Bureau of Statistics showed a 0.4 per cent fall in non-farm GDP using expenditure-based estimates as contrasted with a 2.1 per cent rise on the income-based estimates. If the expenditure-based estimates, which are favoured by the Department of the Treasury as being more accurate, are correct, what would have been a modest recovery may have ended. Yet the Treasurer (Mr Keating) used the income-based estimates of GDP to paint an overly optimistic picture of the economy and, therefore, laid the Budget on an uncertain and possibly inaccurate foundation-that is, if one seeks to use the expenditure-based estimates rather than the income-based ones.

Not much mention has been made of the foreign debt of Australia which is now estimated to take about 20 per cent of foreign earnings. These foreign debt repayments have thus risen to a level comparable with some of the troubled Asian and African nations. The London based National Westminster Bank's most recent survey of international foreign debt suggested that Australia's growing foreign debt repayment obligations were reaching levels which 'might cause Australia's credit rating to be reviewed'. These are the reasons we point to these matters as we deal with the Budget and its Loan Bill.

I refer to the statement that was made by the retiring Secretary to the Treasury along the lines that in the past two years alone all the ground that was so painfully won back over the previous seven years has been thrown away. He spoke in terms of the restraint of growth of government expenditure. He said that the objective was to try to place restraints on the payments that are required to service the debts and the deficits which the public sector imposes.

It was disappointing to all Australians to have the statements which were made a week or so ago concerning the difficulties which were encountered in the latest unemployment figures and to hear of the 23,000-odd jobs which were lost in August. This means that despite the breaking of the drought and the consequent economic recovery over the last 18 months, unemployment, under this Government, has fallen by a modest figure and can be reflected more as a drop in the participation rate than in any increase in permanent job opportunities. Based on the latest figures released, had the participation rate remained as it was in February 1983, which was the last full month in office of the Fraser Government, unemployment would now be about 23,000 worse than the latest figures show, leaving a genuine reduction in unemployment under the Hawke Government of a figure that is far from what was envisaged in the promises and the hopes at the time of its election. If one looks at any figures, without relating them to the total statistics that apply to this particular situation-in this case I stressed the fall in the participation rate-they really do not give any great comfort. They do not show that there has been some fall in the number of unemployed.

The Budget does not give as much help as may have been hoped to single income families. There was no increase in this Budget in the dependent spouse rebate; neither was there any increase in that rebate in the last Budget. During the time that the former Government was in office there was an increase in the rebate for a family with dependent children of almost 70 per cent. That the figure has been frozen for the last two years. There has been a diminution in the benefit that is given to single income families, particularly those who have dependent children. I hope that some priority will be given to an increase in that area, because it is one way of directing support to a target group with only one income earner-for whatever reason that might be; whether it is through choice or because of family responsibilities. If we are not able to compensate for the loss, because of inflation, in the value of the rebate, that family's capacity to use every dollar is diminished. This Budget was not able to give any assistance to maintain the value of the spouse rebate, as it was two years ago.

There are other things that could be said about the assumptions on which the Budget has been based. Significant comment has been made in the analysis of the Budget which has shown that those with economic expertise believe there are some risky assumptions within its structure. The Government hopes for the biggest ever real increase in revenue in this Budget. That might be an honest enough hope, but even if there is not that increase in revenue, there will be the increase in government spending on which it was predicted and, consequently, a greater deficit to fund, another loan to service, and more public debt interest to find. It is to be hoped that the risky assumptions will fall in the way of assistance to our economy rather than in the other direction.

When I attended an Estimates committee hearing concerning this Budget, the Department of Trade predicted fairly gloomy prospects for all prices for our export commodities, be they grains, rural products or mineral products. World commodity prices are low. Demand is not showing great activity, so predictions of great growth and steadily increasing revenue may be risky assumptions. Therefore, the huge rises in total government spending are resulting in a lift in the total government interest bill by over $9 billion. That gives us some concern if the assumptions on which the Budget has been based are not realised.

Newspaper headlines showed the public reaction to the Budget. A headline in the Melbourne Age reads: 'Treasury statement asks: have we even had a recovery?'. That sort of statement bears analysis as we look into the figures that are provided by the Treasury in the Budget Papers. A headline in the Sydney Morning Herald reads: 'Reserve's concern about credit clash'. Another headline in the Australian which referred to the structure of the Budget read: 'But there are chickens to come home to roost'. Another headline reads: 'Another Keating '' expansion'' Budget'. I do not think there would be any argument about that, when one looks at the facts and figures. The headlines of another article in the Age reads: 'A deeply disturbing document'. It is on those bases that we then look at the prediction, which is borne out by the Budget, in a headline which reads: ' Economists predict 8pc out of work in mid-1986'. These are the matters to which I wish to draw attention as we deal with this Loan Bill of 1984 which will fund the deficit.

It seems to me that we have great difficulty in our economy. It is not a time to talk glibly, as the Minister for Resources and Energy, Senator Walsh, wishes to do, about Australia having the highest rate of growth of any country in the world and predictions of 10 per cent on this, that and the other. Figures can be used to say almost anything if one wishes to mislead. But I think we have a very serious problem in the Australian economy. We have great difficulty in structuring a Budget that can deal with the expectations of government and the reality that the Australian people have to pay for those expectations, either for themselves or for others. In dealing with this Bill, I again draw attention to the public indebtedness, public debt interest and the fact that 60c of every dollar that we now borrow is required to pay interest on total borrowings. That shows that, like many people, a government can get itself into a moneylender situation, so that the more it borrows, the more it owes, the more it must pay in interest and the less it has as disposable income. I would not like to think that Australia, through any lack of restraint in public expenditure or ability to take the tough decisions that have to be taken by government on behalf of the Australian people, allowed itself to drift further into this public indebtedness which is so difficult to service and which is such a drain on the resources of the Australian people. In dealing with the Loan Bill, I simply indicate on behalf of the Opposition that we regard it as part of the Budget package of Bills. It is not opposed by us. We see it as a quite proper and usual way to allow borrowings to be undertaken in terms of what is a traditional practice at Budget time.