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Tuesday, 11 September 1984
Page: 815


Senator HILL(8.00) —The Senate is tonight debating the Loan Bill 1984. The explanatory memorandum to that Bill states:

The purpose of the Bill is to enable the financing of the prospective 1984-85 Budget deficit--

That really is what this debate is all about. I want to argue that the unacceptably high deficit, in part financed by this Loan Bill, first places undue risk on economic recovery, secondly, is evidence that the Budget is failing to address a strategy that gives hope to the unemployed in this country, and, thirdly, shows the rhetoric on the part of the Government in relation to its science and technology policy as part of a long term economic strategy to be simply that-rhetoric. In other words, I want to argue that this Bill is part of a package which implements a Budget which fails to meet the objective of providing a long term economic strategy.

We have heard a lot about structural changes in the economy, a broadening of the economic base, incentives for efficiency and so forth that would reverse Australia's slipping standard of living and give hope to the continuing unacceptably high level of unemployed. But not even the committed could argue that this Budget was a step in a long term strategy. Rather, it gives nominally increased benefits to a wide range of recipients as an election sop. It will be remembered as a Budget of lost opportunity to those really worried about the long term economic future of this country and all the desirable objectives that flow from a stronger economy.

I turn now briefly to the deficit. This Government is clearly one of high deficits. This year we are looking at a sum of $6,745m. I will very briefly compare that with the deficits of the last Fraser Government. In its first two years the Hawke Government has left us with an average deficit of 3.8 per cent of gross domestic product. Seven years of Fraser Government provided an average of 2.3 per cent of GDP. If one looks at the Commonwealth sector deficit as a whole, which includes the non-Budget sector, one finds that under the Hawke Government the figure for last year was 4.8 per cent of gross domestic product. During the Fraser years the average was 2.6 per cent of GDP.

It is a high deficit Government because it is a high spending Government. Commonwealth Budget outlays have increased on average by 6.9 per cent, compared to the 2 per cent average increase during the Fraser years. As a proportion of gross domestic product, Budget outlays under the Fraser Government averaged 28.4 per cent, whereas following the second Labor Budget, outlays now comprise 31.1 per cent of GDP.

This means that the total public debt following this Budget is estimated at a massive $47 billion. What is particularly ominous is the public debt interest which is estimated to rise by 29.4 per cent this coming year. As a proportion of total outlays, public debt interest is estimated to be 8.8 per cent compared to 7.7 per cent in 1983-84. To put that briefly in perspective, the public debt interest bill for this year is $5.6 billion, only $200m less than the defence expenditure and $1.1 billion more than education expenditure. Beyond the present Budget, the forward estimate shows public debt interest payments of $6.2 billion in 1985-86, which is 9 per cent of total Budget outlays and $7 billion for 1986- 87, 9.2 per cent of total Budget outlays.

These figures indicate the longer term difficulties which will be created by this Budget. The size of the deficit and the public sector borrowing requirements needed to finance the deficit will clearly lock Australia into a succession of high structural deficits for years to come. This can ultimately only have the effect of leading to increasing pressure on interest rates. As Des Keegan, economic commentator for the Australian, said on 22 August:

The deficit adds to a time bomb ticking away.

There could be a huge public sector debt requirement of $17,000 million to fund in 1984-85. It is nonsense to talk of declining interest rates with this swag of debt hanging over the market.

The effect of this high deficit policy decision on Australia's recovery should not be underestimated. A warning can again be found in the Budget statements themselves. I quote from page 12:

Such a recovery process in Australia would be taking place in a world where growth is expected to moderate, financial markets are precariously placed and competitive pressures are becoming increasingly fierce. Australia's domestic economic policies in the years ahead will have to take account of this uncertain and demanding world environment. In that context, the evident widening in the current account deficit of the balance of payments-from an already high base- must be taken into consideration.

In other words, Treasury is advising of the danger associated with this high deficit, high debt decision in today's international climate. The Government, of course, has not heeded that advice because high expenditure is necessary for it to keep its electoral plans on track. But it is an unwise policy, not only in the vagaries of today's international economic climate, but also because of the considerable latent internal economic pressure. The Government's much vaunted accord has placed the economy under substantial pressure. Economic recovery has had to run the gauntlet of centralised wage fixing arrangements which, although resulting in wage rises more moderate than the year before, placed an additional wage bill on the private sector of the sum of $12 billion, irrespective of whether different sectors in the economy could pay. The Government has also been temporarily fortunate in that the Medicare fiddle in February of this year provided a negligible consumer price index increase for the March and the June quarters.

But, although average weekly earnings are estimated to rise by 5.5 per cent this coming year, there could be a rapid upward adjustment if the accord fails. This in turn could well occur earlier than the Government expected, due to the changed taxation scales announced by the Government. It has been suggested, in fact, that under the new taxation scales close to one million taxpayers will move into a higher tax bracket by June 1985. If, for example, average weekly earnings increased by 7 per cent, as suggested in the Budget Papers, under the new tax scales an additional 500,000 taxpayers would find themselves moving into the 46 per cent tax bracket; 350,000 would move into the 48 per cent bracket; and 155,000 would move into the 60 per cent bracket. As outlined in the Australian Financial Review of 23 August, the marginal tax rate of a taxpayer earning over $17,000 at the start of 1984-85 who received standard wage increases during the year would jump from 30 per cent to 46 per cent by the end of the current year. The effect of such developments will be that workers asking for wage rises in future wage indexation hearings will seek increases higher than the CPI figure in order to compensate for higher tax losses by moving into higher tax brackets.

Added to this, of course, will be the expected superannuation push by the building unions in 1985. That will be equal to a 3 per cent rise, which will no doubt inexorably flow through to other sectors. The effects of the Arbitration Commission's decision on redundancy, termination and technological change will add to business costs and further entrench unemployment and the likelihood that the more powerful unions will attempt to achieve part or all of the 9.1 per cent so-called catch-up from the Fraser Government's wage pause. These factors, together or in part, may have the effect of bringing the accord down. The perceived fragility of the accord will therefore play a significant role in determining the investment plans of business and the level of employment. Budget Statement No. 2 points out on page 32:

But investment decisions and decisions regarding the hiring of permanent staff depend not only on the current levels of real wages and profitability but also on expectations about their future course. Sustained growth in investment and employment requires confidence that income moderation will continue and that reasonable profit rates will be maintained.

Investment figures do not indicate that business has that confidence. Business investments in 1983-84 in fact fell by 11.6 per cent, and although there has been a moderate improvement since there is no indication that that is likely to continue. Manufacturing investment activity has declined in constant terms from the year 1981-82. In fact, the estimated figure for 1984-85 is still below that of 1979-80. As for employment, figures for the past financial year show that most of the growth of employment, and it is only very moderate growth at that, has taken place in public administration and defence, financial services, communications and community services. Of these employment growth areas, public administration and defence has grown by 8.2 per cent over the year, which is more than double the increase provided by any other sector. Thus the very moderate improvement in unemployment also does not reflect increased business confidence, it largely reflects the direct Government expenditure on short term employment schemes and also the increased fiscal stimulus to housing and limited short term stimuli of this nature. Everyone would concede that that cannot go on forever. The Government cannot forever continue borrowing to keep people in work .

The shadow Treasurer has very validly pointed out the concern about revenue levels for the future. He pointed out that provisional tax under this Budget will rise by 44.7 per cent, and no one can seriously say that that will be maintained. If one looks at the increases for the two previous years, the 8.4 per cent in each year, one is likely to get a better guide for the future. That, in turn, can only mean that in the future there will be higher borrowings or higher taxes or both. Therefore, the cynical expediency evident in this Budget has been at a considerable cost to long term economic growth. The Government would have gone a long way in encouraging business confidence and investment if it had had the courage to wind back substantially the structural deficit. Even with the $1.3 billion tax cuts as the quid pro quo of the accord, the Government could have wound the deficit back to $6 billion or less if it had not undertaken its own spending spree. In fact, the economy at this stage is in need of no further additional stimulus, and the maximum deficit reduction would have gone a long way in reducing further pressures on interest rates and encouraging business investment. As the Australian Financial Review editorial noted on 22 August:

Where the Government has successfully so far misled the greater part of the business community is the way it has sold its Budget deficit of just under $7 billion as a triumph of responsibility and good management and the best that could be achieved in the circumstances. This is simply not the case.

What is particularly disappointing is that despite this huge deficit and the Government's free-wheeling spending policies, the Government has failed to recognise the importance of science and technology to the future economic strength of Australia. I remind the Senate what was said at the Williamsburg Summit last year. I quote:

Science and technology are a source of national and international strength and can provide immense opportunities for revitalisation and growth of the world economy.

And there is a recognition of this in the Budget Papers which say:

Building an ongoing recovery will require an expansion of Australia's productive capacity.

Many people in this country were looking to the Budget as an opportunity for the Government to put its rhetoric in relation to science and technology into action . The Government had long professed to see the strong scope for growth inherent in this economic sector. But that rhetoric does not sit well with a 1.6 per cent increase in real terms in the science and technology budget. Australia's continued leadership in research activities had been put in jeopardy by the Government's lack of commitment to the Commonwealth Scientific and Industrial Research Organisation, which suffered a decline in its capital funding budget. As Professor Arthur Birch, President of the Australian Institute of Science, said a few days after the Budget:

Australia faces the possibility of becoming a third world nation in its scientific efforts.

How does this Budget outcome reflect on the Government's professed aims as outlined in its national technology strategy? I remind the Senate of the preface to the discussion draft, National Technology Strategy, in which the Minister for Science and Technology (Mr Barry Jones) said:

The Government recognised that science and technology clearly has a central role to play in Australia's economy by revitalising existing industries and encouraging growth of new ones.

Moreover, how does this Budget outcome sit with the fact that on the Government' s own figures Australia has been performing poorly in the high technology export race? The Government's science and technology statement for 1983-84 shows that out of the 24 Organisation for Economic Co-operation and Development countries, only Iceland, Greece and Turkey are exporting less technology-based goods per head of population. In responding to these depressing figures, the Minister for Science and Technology said:

We must overcome the essential fragility of our industrial infrastructure and build our own export market based on high-value advanced technology goods.

The Minister was reported as indicating his belief that within 18 months there could be an upward swing and a rise in Australia's ranking compared with the other 20 OECD countries. Added to this, the science and technology statement also showed that Australian spending on research and development had fallen as a proportion of gross domestic product to only 1 per cent. In 1968 the figure was 1.34 per cent.

For those of us who see Australia's efforts in science and technology as critical to Australia's economic future in an ever more technically sophisticated world, the Government's performance, particularly remembering its rhetoric, is lamentable. Again it evidences the lack of a long term strategy. This Government is clearly more concerned with the short term political gain attached to spending increases in other areas.

The Minister's reported explanation for the meagre funding increases for science and technology that there were 'not votes in science' is a staggering indictment of a government which professes to have policies which are correct for Australia's long term economic future. Basically this Budget represents a victory of electoral expediency over any long term economic strategy. Great uncertainty still remains as to the viability of our long term economic recovery , yet these uncertainties have not been addressed in any serious manner. The Treasurer (Mr Keating) has attempted to present the Budget with a veneer of responsibility. Australia would have been better served by a government which showed greater courage and foresight.