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Tuesday, 23 April 1985
Page: 1365

Senator WALSH (Minister for Finance)(3.29) —The Leader of the Opposition, Senator Chaney, opened his speech by boasting about the series of questions the Opposition asked today, which apparently the Opposition has concluded was highly effective. As a result of those questions, the Opposition made the great discovery that the reductions of the order of $1 billion to which the Prime Minister (Mr Hawke) was referring yesterday were reductions from the forward estimates of expenditure. I have been telling journalists that for about the last two months. I have been telling them that that was the sort of target the Government had and was the base from which the forward estimates figure would be measured. So all the questions the Opposition was asking revealed nothing except an attempt by it to find out what the forward estimates figure was. As I have been doing for the last two months, I refused to give the Opposition that figure.

Senator Chaney has repeated the rather puerile points made during Question Time by way of questions from the Opposition that the actual 1983-84 Budget amounted to $1.2 billion below the figure for the forward estimates of expenditure. As I said during Question Time, it was very much easier to cut into the programs which the Fraser Government presided over during the wild spending spree period in its last desperate year in office than it is to cut into a leaner Budget. Nevertheless, it was not entirely without pain that those cuts were made from forward estimates in our first Budget.

Senator Chaney placed great emphasis on the fact that for the 1984-85 Budget, estimates of outlays were $1.3 billion lower than they were in the forward estimates. Therefore, said Senator Chaney, the effort the Government is making this year is puny and puerile compared to the effort it made last year. Superficially there may be something in that, but in fact there is not. The forward estimates published early in 1984 contained, as do all forward estimates, an estimated deflator. The deflator on which those estimates were based was 9 per cent. I believed at the time that the figure was too high, as did many others. The figure was produced by Treasury, the Secretary of which at that time was Mr Stone. That is not unconnected with what I believe is the fact that that deflator estimate was determined more by ideology than mathematics. It was a wish rather than a measurement and it turned out to be very, very wrong.

When the Budget was finally prepared the deflator estimate had fallen to 6 1/2 per cent, and indications are that that figure will be pretty accurate. The difference between those two figures is 2 1/2 per cent. I acknowledge that the deflator figure is not relevant to all Government outlays. I do not have with me the precise percentage to which it is relevant, but it is relevant to the great majority of Government outlays. If it was applied to all Government outlays, the truth is that those forward estimates published early in 1984, due solely to the over-estimate in the deflator, were about $1.2 billion higher than they ought to have been. I see Senator Messner wrinkling his nose.

That figure is subject to the qualification I made about all outlays being affected by the deflator. I acknowledge that that is not the case but the overwhelming majority are. I calculate that up to $1.2 billion is entirely attributable to the erroneous deflator incorporated in the forward estimates at the time they were prepared. Although, for a reason to which I referred earlier, there has been a significant change since then, it illustrates the point that forward estimates, if there are massive parameter changes, are highly unreliable.

Lest the Opposition should seek refuge in that comment and say that, therefore, the forward estimates produced in 1983 were equally unreliable, there were not massive parameter changes between those assumed in the 1983 forward estimates and the actual outturn. In 1983-84 any error it may have contained would have been slight and any error attributable to an incorrect deflator having been built into the model of the estimates was trivial. In 1984 the situation was very different. A deflator of 9 per cent had been built into the estimates, when the final outcome in the Budget estimates was 6 1/2 per cent.

I do not know whether, having been enlightened in that respect, Senator Chaney now wants to castigate the Government for not being rigorous enough in pruning expenditure last year, but he cannot have it both ways. This year the deflator built into the forward estimates, principally because of Mr Stone's retirement as Secretary to the Treasury, is a far more credible figure. I am not going to tell honourable senators what it is.

Senator Chaney —But it is credible.

Senator WALSH —But it is credible. It was credible at the time it was produced, in my judgment, as the one produced in 1984 was not credible, in my judgment. The one produced this year was credible. If it needs any revision, because of the devaluation, the required revision might well be upward.

The actual outcomes and the forward estimates this year, as in 1983, are not likely to be substantially affected by changes in the deflator. The $1 billion reduction which the Prime Minister forecast yesterday, which I have been talking about for a couple of months, and which will be announced next month, is the outcome of adjustments to programs and real expenditures, not to parameter changes.

In the 1984-85 forward estimates, published early in 1984, the changes in the outlays outcome and the forecasts were overwhelmingly due to the changed parameters. Parameter changes will not be related to any significant degree at all to the $1 billion reduction which will be announced next month. They are attributable to adjustments to programs. That is in marked contrast to the much vaunted Fraser Government's razor gang of 1981, which laboured for some months in a blaze of publicity about the ruthless razor gang getting stuck into the fat of Government. The Review of Commonwealth Functions Committee ultimately produced a booklet entitled 'Ministerial Statement-Review of Commonwealth Functions', which does not have in it one figure quantifying an actual reduction in programs; not one single figure quantifying the massive and ruthless attack on bloated government expenditure which that Committee claimed to have made. There was a global figure given by the Prime Minister of the day, who said:

Compared with the costs of continuing programs on the basis of existing policies and arrangements, the estimated overall effect of these measures will be an eventual ongoing saving in Budget outlays of the order of $560m.

I do not know whether that was true, even with the heavy qualification, but it does not matter very much. The point is the qualification. No doubt that discredited former Government, in its characteristically devious way, hoped that the public would be fooled by that figure and would interpret it to mean that the Government had taken $560m off next year's outlays. It meant no such thing. If it meant anything at all, it meant that the Government had made some adjustments to policy as a result of which at some time in the future, over an indefinite number of Budgets, outlays would be reduced by $560m.

I made the comparison earlier with the Alice Springs-Darwin railway. The eventual ongoing saving in Budget outlays-to use the former Prime Minister's words-attributable to cancelling that decision was almost $500m, but the Budget savings for the year in which it was cancelled were, from memory, of the order of $10m. The actual savings in projected outlays in the 1981-82 Budget from the Fraser Government's razor gang exercise, given that they were never stated, were probably of the order of $10m, $20m or, if one is generous, $50m; certainly nowhere near $500m. If it had been anywhere near $500m or $560m, it would have been quantified and specified.

I have some sympathy for Senator Chaney as he was a member of that Government and, I believe, one of its more, if not most, responsible Ministers. But he suffers from a bit of pique and jealousy because the best that that Government could produce was an unspecified and undetailed assertion that $560m had been saved over an unknown period in an unknown number of Budgets from adjustments to an unknown number of programs, the financial consequences of which were not quantified. I can understand Senator Chaney being a bit piqued that, given the puerile and pathetic effort of the Government of which he was a member for that result, this Government is about to deliver a figure and an outcome that really mean something.

Senator Chaney also referred to the deficit-I think the term that I almost always use is 'prospective deficit'-inherited by this Government of $9.6 billion, incorporating a deflator which was not unrealistic as the estimates of outlays produced one year later showed. That was a real figure, a prospective $9.6 billion deficit. That is what this Government inherited and that is what the previous Government had denied in the week before the election. On both the Tuesday and the Friday prior to the March 1983 election the discredited former Treasurer had asserted that the Budget deficit for 1983-84 would be of the order of $6 billion, when he had been told that the correct figure was $9.6 billion. He had been told the correct figure yet he publicly asserted that it was $6 billion. He was up to his neck in the conspiracy with the then Prime Minister, Mr Malcolm Fraser, to deceive the people of Australia. That is the man whom Senator Chaney would have as an alternative Prime Minister and that is the man whom the Opposition would have as an alternative Treasurer.

If one looks at his record as Treasurer, one sees that it is marginally better than his record as a fearless and frank discloser of truth in the week before an election. Mr Howard presided over five Budgets. The errors in outlays for the first three of those Budgets were within reasonable bounds because nobody can predict outlays with any real precision, even if there is no intention to do otherwise. But in his last two years, his record deteriorated rapidly. In his second last Budget the error in actual outlays outcome as compared to projections was $463m and in the last year it exploded to a massive $1,915m-almost a $2 billion error in the estimates of outlays. If outlays figures containing errors of that magnitude were to be consistently published, one could argue that they would not be of much enlightenment to anybody, as indeed the outlays figures published early in 1984 were not very enlightening, given the erroneous deflator figure that had been built into them.

If one looks at the deviation between forecast deficits and actual outcomes produced by the previous Treasurer, one sees much the same pattern emerge. His first Budget of 1978-79 had a deficit $665m higher than he had projected. That is substantial but it is acceptable. It is not so wildly at variance with the predicted deficit that one could say that a prima facie case had been made for either gross incompetence or worse. In 1979-80 he got closer. In 1980-81 he was also reasonably close, in fact, somewhat closer. Then, the rot set in. It was the same old pattern, not only of increasing magnitudes of error, but of the changes always going in the same direction. In 1980-81 his Budget deficit was in fact $400m lower than had been projected. In 1981-82 it was $450m higher. So in one year some $850m had been added in the direction of an understatement of the deficit. But that was nothing compared to what was to come. In his last Budget the deficit which he estimated was understated in comparison with the final outcome by $2,799m, which even exceeded, in absolute terms, the error of his outlays estimate.

Finally, Senator Chaney was critical of me for-to use his emotive and misleading language-'attempting to blackmail the Opposition' into not criticising the Government on the grounds that it would destabilise the economy, the dollar and so on. Under normal circumstances that might be a reasonable comment to make. Under these circumstances, however, it is not. It is not because the people who are in charge of this Opposition, or rather its Leader, have an established record of economic sabotage for perceived political gain. In the two weeks before the 1983 election he shouted to the world that if Labor won government there would be a massive devaluation of the dollar. Because of his economic sabotage there was a flight of capital from the country followed by a devaluation of the dollar-the self-fulfilling prophecy which that opportunist Leader of the Opposition, with no scruples at all, employed for perceived political gain as a result of which Australian taxpayers were defrauded of hundreds of millions of dollars by foreign currency speculators. That is the sort of thing that this Opposition continues to do.