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Friday, 10 May 1985
Page: 1757


Senator TOWNLEY —My question, which is directed to the Minister for Finance, follows a previous answer. I refer also to some figures on page 9 of the report on Forward Estimates of Budget outlays and staffing for 1985-86, 1986-87 and 1987-88. Does the Minister agree that the figures in this estimate of Budget outlays are based on conservative figures, yet they indicate that the public debt interest that this country will have to pay will be 8.8 per cent of outlays this year, 9.5 per cent of outlays next year-more than defence, health and education individually; not cumulatively-10.1 per cent in 1986-87, and these are conservative figures, and in 1987-88 will be 10.7 per cent?


The PRESIDENT —Order! The honourable senator is giving too much information in his question. I ask him to ask a question.


Senator TOWNLEY —I ask then: Does the Minister agree that these interest payment trends show what some of us on this side of the chamber have been saying for quite a while-that the borrowing by this Government to fund government spending in this country is out of control and that, unless this Government takes real action to cut government spending and reduce borrowings, we will soon be the poor country of South East Asia?


Senator WALSH —If Senator Townley has been saying for some time that governments should not be accumulating net indebtedness, it is a pity that he was not saying it when his Government was in office. Earlier today I gave figures which, by the strictest definition-that is, leaving half a year off either end of the term the previous Government was actually in office-show that public debt doubled and interest payments on public debt trebled. The reason for the difference in those ratios is that when Senator Townley's Government was in office interest rates hit all time record high levels; interest rates hit the highest level ever. Inflation and unemployment were both in double figures, and both were going up. We had the highest interest rates ever and negative real growth of a magnitude that had not been seen since the 1930s. That was the sorry record of his Government. If he has been saying that governments should not be incurring further debts, I just wish that he had been saying it between 1976 and 1982 from whence came the figures I have just cited.

It is correct that, because of the very depressed economy that this Government inherited from Senator Townley's Government-an economy in the grip of recession, the like of which had not been seen for 50 years, with a prospective deficit of $10 billion-it would have been quite foolish to try to bring in a balanced Budget. But economic growth has been restored and Budget deficits are progressively falling. It is true that total public debt outstanding is likely to increase in the next few years, as are interest payments on that debt. I have given Senator Townley about four lectures on this subject so far, and I do not know whether it is my shortcomings--

Opposition senators interjecting-


The PRESIDENT —Order! I am finding it extremely difficult to hear the melodious voice of Senator Walsh, and I would like to hear it.


Senator WALSH —I do not know whether it is because of my shortcomings as a lecturer or shortcomings or deficiencies somewhere else, but he continues to run the line that, because there is a huge public debt, the country cannot afford it.


Senator Townley —That is right.


Senator WALSH —He confirms that. What he fails to take into account-and I will try to speak slowly and in monosyllables-is the vital difference between a debt owed abroad and a debt owed internally. If all the debt was owed internally, although the payments from that debt restrict the options that governments have available to them in the spending area because that debt might be a significant component of the total, exactly the same amount is received as interest paid as is spent by governments and recouped from taxpayers. There is a symmetry about it, senator. Oh, sorry!


Senator Ryan —Say a balance.


Senator WALSH —There is a balance about it.


The PRESIDENT —I ask the Minister to reduce the lecture to a short answer.


Senator WALSH —The overwhelming majority of Australia's public debt is owned internally. I can incorporate now answers to questions from Senator Townley, Senator Sir John Carrick and Senator Jack Evans over the last month or so on this very subject. I seek leave to incorporate that document in Hansard.

Leave granted.

The document read as follows-

Questions concerning the impact of the recent devaluation of the Australian dollar on the interest costs and repayments of the Government's overseas debt were asked by Senator Townley on 25 March 1985 and by Senator Sir John Carrick and Senator Jack Evans on 22 April 1985.

Senator Townley and Senator Sir John Carrick asked questions concerning the impact of the devaluation on overseas debt servicing costs of Federal, State and local government. Senator Jack Evans asked, in addition, for similar information with regard to Commonwealth enterprises.

It is estimated that the decline in the value of the Australian dollar between January and early April 1985, if sustained, would add about $140 million to interest costs in a full year. Repayment schedules for overseas debt vary from year to year; however, with the existing maturity profile, the additional cost of repayments in Australian dollar terms due to the decline in the value of the Australian dollar would be around $130 million for a full year. These estimated additional costs will not necessarily be reflected in actual payments which are at rates prevailing when the payments become due.

Comparable data on foreign denominated debt of Commonwealth enterprises, State and local government, and on private borrowings are not available.

Senator Townley asked what percentage of the interest on public debt is paid to overseas banking organisations.

At the time of the last Budget it was estimated that the interest liability on debt issued in foreign currencies comprised about 12 per cent of total interest on debt issued by the Commonwealth Government.

In addition, overseas banks or other organisations may tender for loans, denominated in Australian currency, issued within Australia or purchase securities on the secondary market. It is estimated that at 30 June 1984 total interest payments overseas comprised about 14 per cent of the total annual interest liability of the Commonwealth Government. Comprehensive data on the total interest paid to overseas banking organisations are not available.

Senator Jack Evans asked to what extent currency hedging was undertaken by the Commonwealth Government and Commonwealth enterprises.

The cost of servicing the Commonwealth's external debt is offset to varying extents by the interest earned from the Reserve Bank's management of its international reserves, which are held in a number of currencies. Thus, while the Commonwealth does not undertake formal hedging operations, the existence of reserves held in appreciating currencies provides some natural hedge against debt servicing costs in those currencies.