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Tuesday, 16 April 1985
Page: 1049

Senator MAGUIRE(4.51) —In regard to this matter of public importance raised this afternoon by Senator Peter Rae, it is true that in recent weeks the value of the Australian dollar has gone down. However, it is arguable, as a number of commentators have said, that the dollar was overvalued. It had a higher value than it should have had in relation to Australia's fundamental trading relationships. The argument advanced by Senator Peter Rae assumes that the lower movement of the dollar will somehow be a medium to long term arrangement and that the dollar will stay down at those levels for a long time. But it is by no means clear that the dollar will stay down for any length of time at that value. I wonder how the Opposition will feel if in the near future the value of the dollar moves up again. What sorts of measures will Opposition members then call for in those circumstances? Will they be like some of the employer groups last year-when the Australian dollar rose-and call for discounting of the price effects of that revaluation of the dollar? If so, that will be the reverse of what is happening at present. It does not square up with the Opposition's arguments in this debate.

The Opposition's record on the economy and the exchange rate is poor. Opposition members have tried to talk down the economy since they took over the Opposition benches in 1983, and yet over that period the economy has grown and grown. Let us look at the record of the Opposition on the exchange rate and recall what happened in 1972 under the McMahon Government. Then it was clear that the Australian dollar was undervalued-the reverse of the present position. The dollar should have been revalued on world markets, but that Government did nothing. For months the Australian dollar was consistently undervalued. As a result all kinds of distortions were engendered in the economy and economic costs were imposed on the Australian community. The Labor Party had to step into office and put the exchange rate to an appropriate value by means of a revaluation. The present Labor Government has floated the Australian dollar on currency markets-something the former Government would not do. At present, market forces are operating in Australian currency markets, but for some reason in this instance the Opposition does not like to see market forces in effect.

One of the key reasons for the recent devaluation has been the surge in imports, the leakage to overseas suppliers resulting from increased demand in the Australian economy. That is a well-known effect and occurs frequently in open trading economies such as Australia's economy. Between 10 and 20 per cent of Australia's gross domestic product is in traded goods, imports and exports, and it is evident that in such economies the level of imports is determined importantly by the level of activity and growth in the economy. Price levels-price competitiveness-are only one factor in determining levels of imports. Unfortunately, it seems that the Opposition has a fixation about cost levels and price competitiveness and is not prepared to look at the other forces at work in the economy-forces which, in the short to medium term, can affect levels of imports. That is a very important factor to bear in mind.

It is on record that in the 1983-84 financial year Australia experienced 10 per cent real growth through the year. From June 1983 to June 1984 Australia enjoyed 10 per cent real economic growth-the fastest growth in the world. That achievement has been ignored by the Opposition. Good growth is expected in the current financial year and it is now expected that the growth forecast in the Budget will be exceeded. In two financial years Australia has had strong economic growth. I believe that factor primarily has led to the surge in imports. As economic activity has picked up, there has been an increase in the imports of raw materials and capital equipment. The trend in Australia is fairly well documented for other industrialised economies which have experienced rapid economic growth.

It should be noted that the surge in imports is now slowing down. For example, the Melbourne Sun this morning points out that the growth in imports in the 12 months to March this year was lower than the growth in imports in the 12 months to December last year. That points to a downturn in the growth trend in imports. They are heartening figures. It is also important to note that the slowdown had begun to occur before the downward movement in the Australian dollar. The balance of payments figures which were released yesterday also help to expose one of the other economic arguments used by the Opposition as having no foundation. I have been a member of this place for almost two years and have repeatedly heard Opposition members point to the fact that the recovery in the Australian economy has been due to an upturn in the world economy. However, export prices received by Australian producers are not at high levels. It is most unlikely to expect export prices to be at low levels when there is a strong demand for one's products on world markets. If there is any effect flowing from the upturn in the world economy in terms of the Australian economy, I think a large part of it is yet to come and has not been built into production growth in this country to date.

It is also important to note that in regard to the balance of payments figures that were released yesterday there has now been, after seasonal adjustment, a balance of trade surplus-that is, an excess of exports over imports-for two consecutive months. That is a most important movement. I must concede, however, a problem in the balance of payments. It is not so much a problem in the balance of trade area, but in the capital movement area and also in regard to invisibles. Those invisible items in the balance of payments include such items as payments for shipping to overseas companies, insurance services, property income and so forth. There is a real problem in that area since Australia is now facing an invisibles deficit of some $5,000m to $6,000m each year. That large figure is a direct result of the policies pursued by the Menzies Government through the 1950s and 1960s-policies which progressively allowed, if I may put it metaphorically, the farm to be sold off and allowed increased overseas penetration of the Australian economy. Now a large part of our export bill each year effectively has to go to cover the costs to the Australian economy of a very large deficit on invisible items. That will take many years to rectify. I applaud the actions of the former Minister for Trade, Mr Lionel Bowen, in upgrading the machinery in the Department of Trade to deal with the invisibles deficit.

When one boils down the substance of this matter of public importance, it is seeking to deal with the potential inflationary effects of devaluation of the Australian economy. But it should be noted that any price effects, if they exist, will take time to feed through into the economy. They will be very small effects on the next wage indexation rise to be awarded in September or October. The fact is that that rise will be paid in relation to the two preceding quarters. Any price effects in the period of devaluation will be minimal. Whatever happens on this front will happen at some time in the future.

Honourable senators opposite cannot lecture us on inflation after their record in office. For seven years the Australian people were asked to bear sacrifices in the name of fighting inflation first. That was the policy of the Liberal-National Party Government-fighting inflation first. Yet when we assumed office at the beginning of 1983, inflation in this country was at double digit levels; it was 11.5 per cent. The Australian people had absolutely no return for all the sacrifices which they made for seven years in the name of fighting inflation first. Through the prices and incomes accord with the Australian Council of Trade Unions we have developed a core policy which enables economic expansion to occur with lower inflationary consequences. Our record speaks for itself in the inflation area. We have more than halved the rate, from 11.5 per cent inherited by this Government, to just over 5 per cent on the latest available information for the year to the December quarter 1984. It is the lowest inflation rate we have had for years.

Senator Peter Rae —And the highest interest rate we have had since the Depression.

Senator MAGUIRE —How would Senator Peter Rae propose to deal with the high interest rate? I suppose he would raise inflation. We have had a very big reduction in inflation. One of the key differences between the Government and the Opposition parties is that the Government supports centralised wage fixing machinery. The Opposition has a different policy. Centralised wage fixing machinery gives much more scope to control any inflationary effects which might be engendered through external sources. Certainly, the centralised wage fixing system has more potential to stop price and cost explosions in the pressure sectors of the economy. We still need to know what is the Opposition's policy on wages. What is the Opposition's policy on incomes?

Senator Peter Rae —You are in government. What is your policy on what is happening at the moment with the depreciation in the value of the dollar?

Senator MAGUIRE —Senator Peter Rae is in the Opposition. He brought up this matter today. I need to know what is the Opposition's policy on wages. On the one hand we have the Howard-Shack dry faction which wants to move away from centralised wage fixing to decentralised wage fixing with sector bargaining. Then we have the Macphee faction which supports centralised wage fixing. So it is not quite clear what the Opposition would do were it occupying the treasury bench and having to deal with the sorts of problems it is claiming this afternoon exist. Frankly, it does not have a wages policy which would offer any scope to do anything about cost pressures brought into the Australian economy from outside. We need only to look at its record in the 1981-82 period of the Fraser Government when Mr Howard was Treasurer. A partially decentralised wage fixing system developed at the time of the so-called resources boom. Fluctuations in the dollar and very rapid wage rises linked with the currency movements occurred. It was clear that the decentralised wage fixing system that the Liberal and National parties allowed to develop could not shield domestic costs from currency movements. That is the record of the early 1980s. There are big advantages, I believe, in having a centralised wage fixing policy such as that of the present Government.

It is very important to bear in mind that a devaluation of the currency is not an unmitigated disaster. It has important potential economic effects on real economic activity. Devaluation should help expand domestic economic activity. As the cost of imports rises more effective protection is available, particularly for manufacturing industry and the import competing industries of our economy. Those which produce traded goods are given more protection from imports. There should be increases in the volume of production in those areas. It is possible that we will obtain more manufacturing exports as a result of the devaluation of the dollar. Our export industries whose prices are set in foreign currencies will do better because they will get bigger returns. Devaluation is not an economic disaster as some honourable senators on the Opposition benches would have us believe.

The fundamentals of the Australian economy today remain strong. In the key consumption spending and investment spending sections of the economy activity is running at above the levels forecast in the 1984-85 Budget. In both the public and private sectors 341,000 jobs have been created in this country since the present Government came into office. That is more jobs than were created in the whole period of the Liberal-National Party Government from 1975 to 1983. It is very important when the Opposition proposes matters for discussion in this chamber on devaluation and controlling its effects that it makes it clear to the people of Australia what its policies are on wages and whether it supports a centralised or decentralised wage fixing system.