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Monday, 22 October 1984
Page: 2151

Senator MacGIBBON(9.11) — The Senate is debating Appropriation Bill (No. 1) and Appropriation Bill (No. 2) at this rather late stage of the year. It is a fair comment on the managerial ability of the Australian Labor Party that so many months after the Budget was brought down these Bills finally appear in the Senate. They appear at a time of listing of the Government; the Opposition has nothing to do with the time they are brought in. They are brought in in the dying stages of this half-life Parliament before we go to an unnecessary, premature election. Since there are many speakers on this list and time is restricted, I will confine my comments to only a few topics in this Budget. The first is the Labor deficit and its consequences for Australia. Secondly, I wish to make a few observations about the paucity of defence spending.

This year the Government plans to spend $64 billion of the taxpayers' money. More importantly, it plans to spend $6.7 billion of money it does not have. I might say in passing that that is a very rubbery estimate. The true Budget deficit will probably be considerably higher than the $6.7 billion because that figure includes quite a bit of cosmetic trimming with an election coming up. Because the Budget is so heavily overspent, we face the certainty of a mini- Budget in the new year. As Senator Button said in Melbourne last week, the recovery, despite all the hoo-ha from the Prime Minister (Mr Hawke) and the Treasurer (Mr Keating) has been very patchy. In Senator Button's words again: ' Next year the prospects economically for Australia are distinctly poor'. We are dealing with the biggest taxing, the biggest spending and the biggest borrowing government we have seen in Australia since 1945. We have a Budget that has reached record levels of expenditure with respect to the gross domestic product of Australia. Some 31.1 per cent of the gross domestic product is now involved in government outlays, a figure never before attained in peacetime. The sad thing about all this is that the Government is spending huge amounts of money that it does not have. Well might Mr Keating say on television that our first concern is to get the size of the deficit down. As the father of that deficit, he has certainly got a parental responsibility. The concern to reduce the deficit is very laudable, but regrettably we see no signs of it in this Budget.

Let me take half a minute of the Senate's time to put the record straight on what happened in the seven years of the Fraser Government. In 1976-77 the Budget deficit was $2.7 billion; 1977-78, $3.3 billion; 1978-79, $3.4 billion; 1979-80, $2 billion; 1980-81, $1.1 billion; 1981-82, $.5 billion and 1982-83, $4.5 billion. That was the deficit position when the Labor Government came to power, a deficit described by the previous speaker, Senator Crowley, as 'a horrendous deficit left to us', a horrendous deficit of $4.5 billion. My source for that information is page 367 of the Commonwealth Budget Statements for 1984-85, Budget Paper No. 1. These figures show that the deficits for the Fraser years ranged from a low of $0.5 billion to $4.5 billion-the horrendous deficit that Senator Crowley talked about, as so many Australian Labor Party politicians do. Using the same references document as our starting point-Budget Paper No. 1 prepared by the Treasurer (Mr Keating)-we find that in the first year of the Labor Administration the deficit was $7.96 billion, nearly $8 billion, almost twice the maximum figure that through the Fraser years. This year the estimate is $6.7 billion. As I said before, that is a very rubbery estimate which will blow out by 30 June next year. The facts of the matter are that in two years the Labor Party has spent $14.6 billion more than it has received against an accumulated deficit of $17.6 billion-over the seven years of the previous Fraser Government. This point has to be driven home to the Australian taxpayer. This Government is a big taxing, a big spending and a big borrowing government.

If one spends money that one does not have one has to balance the books in one of two ways: One either prints the money or one borrows it. This Government has borrowed it. It has borrowed its way into a huge public debt. That debt will not be paid for by the Ministers of the Hawke Labor Government and it will not be paid for by the politicians of the Labor Party; it will be paid for by every taxpayer and every person who owns any assets in the whole of the Commonwealth of Australia. On many occasions in the recent past Senator Townley has informed the Senate of the way in which the debt borne by the average Australian is comparable with the debt borne by people in Argentina. Per head of population the average Australian's responsibility for the public debt we have is comparable with that of a person in the Republic of Argentina.

If we turn to page 267 of Budget Paper No. 1 and we look at the section that deals with public interest we find that the estimated gross interest payment for 1984-85 is $5.6 billion. That is a huge figure. That is money lost. That is money paid on interest that has been borrowed by previous governments. That figure has been added to enormously by the huge deficits in the two Budgets that the Labor Party has brought down. It is an increase of $1.27 billion, $1.270m, on last year's interest payment- an increase of 29.4 per cent. We are spending $ 5.6 billion this year on interest payments, which is more than the $4.5 billion we are spending on education. It is almost as much as we spend on defence. We are spending $5.6 billion on interest payments and $5.8 billion for defence. As I said earlier, the tragedy of all this is that the Australian people will work for years to pay off this debt.

Because of this gross overspending it is certain that we will have a mini- Budget. It is certain that the Labor Party will have to get more money to pay for its excesses. We are looking at the certainty of assets tests, capital gains taxes, wealth taxes and death duties. Whatever it calls them, the Labor Party will be in the market trying to skim off as much as it can from the productive sector of Australia. That was tacitly admitted by the Prime Minister (Mr Hawke) and the Ministers in this Senate throughout the last week. As surely as night follows day we face these taxes on the thrifty, the provident and the creative in Australia.

Those taxes are unfair. They are also very shortsighted for the welfare of Australia. When the Labor Party sees a tax it immediately raises it. If it does not have a tax on some item, such as wine, it puts a tax on it. It cannot keep its sticky fingers off anything. Beyond the effect on the individual, the policies followed and to be followed by this Government in imposing these capital gains taxes will have a tragic effect on the wealth and the standard of living of the whole of Australia. The more that people are denied profits, the less money there is to be invested and the less employment there is in the country. All assets tests, whether they are called capital gains taxes, wealth taxes or death duties, reduce the rate of saving in the community and therefore the rate of investment. When the rate of investment is driven down a damper is put on the growth of commerce, which further paralyses the economy.

The person who saves and invests for his old age is the most creative person we have in the community, and he is also the person who is most legislated against. Last year the Labor Treasurer (Mr Keating) removed entirely the concession that the Liberal Party of Australia had introduced to grant a concession on the first $1,000 of dividends earned from investments. That has had a great effect of depressing the interest of the small investor in the stock market or in any other form of investment from which he can get a dividend.

I return to the effect of a capital gains tax on savings, because those countries which have high savings have higher growth rates, and because they have higher growth rates, they have higher standards of living. We cannot have savings unless there are investment opportunities because people simply will not go through the self-denial of saving money and investing in a business if they are not going to get some return at a future date. They will do the obvious thing and enjoy the pleasure of the money at the time and at the end of their lives they will end up by being a burden on the community. I seek leave to incorporate in Hansard a table showing the relationship between savings, as a percentage of the gross national product, and productivity gained. I show this to the Minister for Education and Youth Affairs (Senator Ryan).

Leave granted.

The table read as follows-



Investment gain

as (increase

percentage in output Country

of G.N.P. per hour)

Japan (1) 26.44 8.8 West Germany (1) 18.43 5.4 Canada (1) 17.45 4.5 France (1 ) 16.85 5.7 England (1) 14.69 3.3 United States (1) 13.41 2.6 Australia (2) 11.4 2.5

Sources: (1) American Iron and Steel Institute.

(2) Reserve Bank of Australia, Occasional Paper No. 8A.

Senator MacGIBBON —I thank the Senate. This table lists those countries in as rank from those with the highest percentage of savings, as a percentage of gross national product, to those with the lowest. Japan has the highest level of savings invested as a percentage of gross national product. The table is over a time span of 18 years, from 1960 to 1978. This shows that the Japanese invested 26.4 per cent of their gross national product through those years, and they had a productivity gain of 8.8 per cent. In the middle of the scale is France which invested 16.8 per cent of its gross national product, with a productivity gain of 5.7 per cent. The country which is lowest on the scale is Australia, with 11. 4 per cent of savings as a proportion of its gross national product, and with the lowest productivity gain of 2.5 per cent, which is just about one-third of Japan's.

If we want to lift Australia out of the doldrums and make it a vigorous country once again we must induce people to save more. At present there is not incentive to save and invest. The taxation system in effect punishes those who wish to do this. The Japanese do the opposite. They have direct tax incentives for saving. They save about a quarter of their gross national product, and because of this there is plenty of money available for business, and because there is plenty of money available, interest rates are lower. The cost of capital for a Japanese businessman contemplating an investment in a new factory, for example, is very much lower than it is in Australia-it is about a third of the rate. He pays about 6 per cent for his money, whereas in Australia, where there is competition for capital because people do not save to the degree that they do in Japan, the investment rate is about 20 per cent. Putting that another way, it means that a business can be profitable on about half the margin in Japan as it is in Australia. That means the Japanese can employ more and ultimately their standard of living goes up. These are the sorts of fundamental issues that are not perceived by the Labor Party when it talks about a capital gains tax. It gets carried away with some obsessional greed about people who have saved and been thrifty and productive through their lives. By taking on these people and stripping them of their assets the Government is very much killing the goose that lays the golden egg.

I turn now to defence. We live in dangerous and unpredictable times. We live in an age of new technology, of rapidly changing technology, where threats can emerge at very short notice. I will not accept the doctrine that if we are harmless and undefended no one will worry us. I have the view that if we are able to protect ourselves as a nation it is unlikely that we will be challenged, given the geography and the assets that this country has. It is the first duty of any government to protect its people. Under this Government we have seen a run down in the defence preparedness and defence capability of Australia.

Last week this chamber had a report presented to it from the Joint Committee on Foreign Affairs and Defence. It was a report from a bipartisan committee of the Parliament, from both sides of politics in both houses. It was an apolitical document and I regret very much that we do not have time to debate it. However that report found major shortcomings in Australia's defence. They are shortcomings with the capabilities we have at present and with respect to the direction in which we are going. I would like to debate the direction in which we are going at a future time; there is not time for it tonight. But I would like to look at some of the shortcomings we have at present which come as a consequence of the inadequate funding under this Labor Government. Quite simply, at present we do not have enough money for defence. The fourth paragraph on page 75 of Budget Paper No. 1 states:

It should be noted that Table 4 to Statement 6 shows real growth of only 1.5% for the Defence function in 1984-85 over 1983-84 expenditure levels . . .

So much for the huge figures that have been put about by the Minister for Defence, Mr Scholes, in his defence statement made in the last week that the House of Representatives sat. The fact that there is a 1.5 per cent growth in defence expenditure is absolutely meaningless given the savage cuts that took place last year under the Labor Government. We are coming off a base which was too small to be supported. A 1.5 per cent growth on a level that was inadequate is purely a notional and meaningless increase. The problem is that the three armed services do not have the money they need for ammunition, fuel and exercises. Because they do not have this money they cannot maintain the level of operational readiness that we must have from the forces we have in place.

We have only very meagre forces in Australia. We have only a very small number of soldiers, airmen and sailors who we can commit immediately if we have an emergency. In those circumstances it is most imperative that they are kept at the very limits of their capabilities. If we do not do that there are three consequences. The first is that we literally will not have any defence at all; the second is that lives will be lost in training accidents; and the third is that if the situation goes on much longer we will lose not only operational readiness but also expertise.

As the Joint Foreign Affairs and Defence Committee report argued, even if our forces were operationally ready they are inadequate with respect to numbers and capabilities. I do not want to argue the case about numbers at the moment, but I want to hammer this business of capabilities. With the low numbers of servicemen we can commit in an emergency, the matter of capabilities is absolutely paramount. At present with this lowered level of operational readiness, we simply could not cope with any emergency at all.

The second point is that if we continue at this level we will lose lives of servicemen because of the lowered level of training to which they are subjected. When anyone enlists in the armed services it is implicit in that contract that his life is on the line for this country if the country needs him. But the other part of that contract-the unspoken part of it-is that this country must do everything it can to give that serviceman the chance of staying alive if his services are required in an emergency. Inherent in being a serviceman is the fact that it is a high risk occupation and it needs a very high level of training. A country cannot train its servicemen if its battalions are under strength and it only has two companies out of three or two battalions out of three in a brigade. A country cannot train its servicemen if it does not have the equipment, the fuel and the ammunition. Service personnel cannot drive tracked vehicles if there is an inadequate allowance for track times. Naval personnel cannot operate ships to the limits as they would need to in war time without adequate sea time and, most important of all, pilots cannot fly aeroplanes on combat roles without doing a lot of flying. There is an enormous difference between flying an aeroplane absolutely safely in all weathers and coping with all types of emergencies from here to there or in the circuit area or in peace time tasks and flying with the levels of competence that are required in combat where a pilot is operating an aeroplane at the limits of its flight envelope, as our pilots are called upon to do.

I have been flying for 20 years. I have some experience of service aviation. I was the first Australian civilian to fly the F18, on 29 January 1982. I have flown all the supersonic types of aircraft in the Royal Australian Air Force inventory and have flown on the latest air combat manoeuvring ranges in the United States. I am absolutely emphatic that one cannot fly safely in a training combat situation unless one is doing it all the time. Unless one is doing it all the time, one just does not have that heightened perception which saves lives and prevents accidents.

A large part of this can be achieved on simulators, but we do not have any modern simulators in Australia for combat aircraft. The latest generation of simulators are incredibly complex and capable and they are very essential teaching adjuncts. Apart from the P3C simulator at Edinburgh, which is right up to the latest state of the art, we do not have any simulators for combat aircraft. We do not have an advanced Mirage simulator. If we have one at all it must be very old. I have flown the F111 simulator that we have in this country and that is a very useful tool, but it is not comparable in any way at all with the latest type of combat simulators.

I come back to this essential point: If we are going to train fighter pilots and strike pilots we must provide the money to enable them to fly constantly in combat simulation exercises. Otherwise we will have an increasing number of accidents in this country and the lives of young servicemen will be needlessly lost-whether it is in flying combat aircraft, driving tanks or sailing ships. The final consequence of this low operational status is the fact that we lose not our operational capability in the short term, but we also lose the expertise within the individual units. We lose the whole way of being able to do things- the doctrines that have been built up over the years. Once we get to that point where we lose that expertise, we have at least a 10-year task in rebuilding it.

The cause of all this is very simple. We are just not devoting enough money to defence. The defence percentage of the total Budget outlays in the two Labor Budgets has declined. In other words, the percentage going to defence, in last year's Budget and this year's Budget, is less than it was in the preceding years of the Fraser Administration. Compounding this has been the effect of the increase in capital expenditure as a component of the defence budget. In the last full year of the Fraser Government, 1981-82, 12 per cent of the defence vote went on new capital equipment; this year it is at least 22.6 per cent. The Labor Party is making a great virtue out of the fact that the percentage going to new capital equipment is up 10 per cent to a figure of 22.6 per cent. It is making a virtue of it because it has no option. The previous Government locked the country into purchases of overseas equipment, equipment that is absolutely essential, such as the FFGs and the FA18s, and those contracts have to be honoured.

Rather than putting the defence budget up 10 per cent, which is what should be done, it has taken that money out of the Defence budget and left it in almost the same levels as preceding years. That is disastrous because it means that 10 per cent has to come out of other operational expenditure. When the defence forces are already running on the bare minimum for fuel, for ammunition and for exercises, there is no room at all. It has to lead to a drastic reduction in housekeeping expenses. It means that spares holdings are run down to nothing, that fuel holdings are minimal, and that fuel for exercises is hardly obtainable ; there is very little ammunition, and very little exercise time is available. This is absolutely intolerable. We cannot go on this way. There has to be a very significant increase in the defence vote.

I have chosen to speak of only two of the many defects in this Budget. As I said at the outset, we are dealing with a big spending, a big taxing and a big borrowing Government. As Senator Crowley has also said, regrettably I cannot highlight any of the benefits of this Budget for my own State because there simply are none. The day of reckoning for this Budget is yet to come. The day of reckoning will be borne by the average Australian taxpayer and property owner. This Budget does nothing to correct the very serious structural defects in the Australian economy, defects that price us out of producing goods and services that the world wants. This Budget does nothing for the families or for the people of Australia. This Budget just proves how easy it is to spend other people's money.