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Tuesday, 14 May 1985
Page: 1915

Senator WALSH (Minister for Finance) —I would rather have done the sensible thing and had this statement incorporated in Hansard, but I understand that leave would have been denied. I did then flirt with the idea of tabling the statement but instead, in view of the Opposition's attitude, I seek leave to make a statement and move a motion to take note of the statement.

Leave granted.

Senator WALSH —Tonight the Treasurer (Mr Keating) is presenting in the House of Representatives and to the nation a statement of expenditure savings. These measures, which total $1.259 billion, are a progress report-a first and major instalment-towards meeting this Government's budgetary commitments for 1985-86 and for the remainder of our parliamentary term.

The decisions the Treasurer is announcing tonight arise from the extensive review of Commonwealth spending that we embarked upon early this year. That review was undertaken in recognition of the well-known difficulties of the outlays reduction task, and the wish to secure savings over the full financial year commencing on 1 July 1985. These decisions follow, and will help consolidate, the undoubted success of the Labor Government's economic strategy since March 1983. The evidence of that success is there for all to see.

During 1982 our non-farm economic growth rate was 0.9 per cent; during 1983 it rose to 2.6 per cent; and during 1984 it rose yet further, to 5.1 per cent. These figures, of course, are more than mere statistics to the unemployed who now have jobs or to the many thousands of others whose jobs were threatened by the trend of unemployment under the Liberal-National Party Government. The strong positive growth recorded in these statistics is being continued through this financial year. Recent data confirm the Government's expectations that the Budget time forecasts for activity in 1984-85 will be met.

Australia's economic growth during the first two years of the Labor Government will match that achieved during the entire seven years of the Fraser Administration. Stronger economic growth and reduced inflation have been our overriding objectives since winning office. It is only through the achievement of non-inflationary growth-sustainable economic growth-that we can provide jobs to the unemployed and for our young people. It is only through growth that we will be able to provide real benefits to other needy groups in our society. It is only through growth that we can create the more equitable and just society to which the Australian Labor Party is committed.

In 1983 the Government inherited an economy deep in its worst recession since the 1930s. A boost in public sector spending was needed to stimulate economic activity and produce more jobs. That was necessary to fill the gap left by the private sector, which had been shattered by the policies of the coalition. But the Government always recognised that to produce a sustainable, long-lasting economic recovery, the private sector would have to be restored to its traditional, major role. Already that is happening. Private sector investment, consumption and job growth have recovered strongly. The Government wishes to encourage and accommodate that trend. That is why we have made our trilogy of commitments, in which we have pledged:

There will be no increase in tax revenue as a proportion of gross domestic product in 1985-86 and over the life of the Parliament;

Government expenditure will not increase as a proportion of GDP in 1985-86 and over the life of the Parliament; and

The Budget deficit will be reduced in money terms in 1985-86 and reduced as a proportion of GDP over the life of the Parliament. The trilogy amounts to a recognition by this Government that the share of the public sector in the Australian economy should be limited in the interests of further productive investment, job creation and growth by the private sector. That task has been made more important by the recent fall in the value of the Australian dollar.

In the past few weeks the exchange rate has been moving upwards from its low point. But there remains a very substantial depreciation of the Australian dollar to which the economy must adapt. The positive implications of the dollar's fall in value are very significant. Until now a large part of the recovery in demand within Australia has spilled over into extra imports rather than domestic production. The depreciation will provide a large boost to activity by encouraging demand to be met from local sources rather than imports and by assisting exporters to compete in international markets. As a result, we expect exports to grow faster than imports in 1985-86, so that rather than subtracting from economic growth as it has this financial year, the external sector could add a percentage point or more to GDP in 1985-86. That will provide an additional boost to job opportunities.

The potential benefits of the depreciation, however, will not be realised unless economic policies are directed against the development of an inflationary round beyond the initial price rises caused by the lower exchange rate. One of the requirements for this is fiscal restraint by all levels of government in Australia.

Furthermore, interest rates are now higher than they would have been if the depreciation in the dollar's value had not occurred. That makes it even more important that we assist in moderating interest rate pressures by reducing the demands of the government sector on financial markets.

The Prime Minister (Mr Hawke), the Treasurer and I have emphasised a number of times that in this year's Budget we will cut the deficit in money terms, and that cut will be significant. This Government wishes to ensure that companies borrowing to increase their levels of activity and investment will not be impeded by sustained public sector competition for borrowed funds. Deficit reductions are also required to slow the growth of public debt. It is clearly not appropriate now that we are achieving strong growth, to continue adding to our debt at the rate of recent years. Taxpayers of the future would certainly not thank us for the interest burden.

Government also has a responsibility to current taxpayers. We have the duty to avoid waste and extravagance, to spend in accordance with community priorities and to target assistance to areas of greatest need. The Government has pledged itself in the trilogy to ensuring that the burden of taxation does not rise over the life of the Parliament. Deficit reductions will be achieved not by easy resort to higher taxation but through expenditure restraint. It is with those thoughts that we have approached tonight's statement.

In choosing where to make the necessary cuts, concern for the needy and the less well-off has continued to characterise our approach to public spending. We have maintained the high levels of support we have brought about for the needy. The cuts are directed elsewhere. That orientation does not mean those cuts will go unremarked. It is impossible to cut without protest. But the Government has to determine priorities and the overriding priority at this time is to get the right budgetary outcome in the interests of all.

Before turning in detail to the expenditure decisions we have made, I should add that while some specific purpose grants to the States have been decided, the bulk of Commonwealth-State financial payments will be settled at the Premiers Conference and Loan Council at the end of this month. Needless to say, the Commonwealth will be expecting the States to contribute to the restraint required of all levels of government. As indicated earlier, the result to date of our thorough examination of expenditure programs is to reduce the 1985-86 Forward Estimates by a total of $1.259 billion.

As I have explained, the total cost of programs in the Forward Estimates report will be substantially affected by the depreciation of the Australian dollar, the changed outlook for the economy and various other factors. While the full effects of these have not been quantified, total program savings against latest available estimates are of the same order. These savings do not mark the end of the expenditure control process. With the aim of seeking further savings, we will be continuing to review all areas of spending until the Budget is finally settled in August. The Budget Papers will include a reconciliation of the Budget and Forward Estimates, showing the effect of government decisions and other revisions on the final estimates. I turn now to indicate some of the initial decisions.


Family Allowances

From November 1985, family allowances will not be paid for dependent students aged 18 years and over except in cases of specific need. Eligibility for family allowances will continue as at present for certain categories of full time students for whom education or welfare assistance is payable. As well, the final $6.20 per week of tertiary education assistance will be subject to a more liberal income test from the beginning of 1986. Net savings against forward estimates in 1985-86 are estimated to be $20m and substantially more in the following year.

Child Care

Savings in the children's services program will amount to $15m in 1985-86 and $30m in a full year. These savings will be achieved by reducing the current subsidy. The savings will not be at the cost of the undertaking to provide an additional 20,000 places over the next three years.

Grants for Aged or Disabled Persons' Facilities

Total savings of $9m have been made in this area. A review of in-principle approvals for capital funding of aged or disabled persons facilities has revealed that there are a number of organisations which have not yet proceeded with the construction of projects for which they have long held approvals in principle.

In future, such approvals will lapse if the organisations have not brought their project to tender stage within six months of notification. Applications for renewal of lapsed applications will be considered against the criteria and competing demands at the time.

Social Security Administration

Greater efforts will be concentrated on the detection of fraud and mispayment within the social security system. Savings of $25m against the Forward Estimates are envisaged.

Repatriation Disability and War Widows' Pensions

The Government has reviewed the conditions applying to the grant of disability and war widows' pensions having regard to certain decisions by the High Court and their implications for the Repatriation Commission. These decisions, particularly a decision made this year, mean that such pensions may have to be granted even where there is no evidence whatsoever linking disabilities or death to war service.

The Government recognises that the repatriation legislation was intended to be generous and it fully acknowledges that the community must honour its responsibilities to the veteran and war widow population. I hear the lawyers squawking. Lawyers in the Parliament who have no regard for the public interest are dangerous enough; lawyers who get on the High Court are even more dangerous. However, the Government also believes it is only fair that those pensions should not be granted unless there is a reasonable link between war service and a claim for pension eligibility. It was never intended that the law should provide otherwise. An amendment to the Repatriation Act will be introduced to make this clear.

Apart from that clarification, the existing standard of proof will continue to apply to veterans with service overseas in wartime, to those who in World War II served in Australia in direct combat against the enemy, and for peacetime service on peacekeeping missions or hazardous duty as designated by the Minister for Defence. Claims by other veterans will be dealt with on the civil standard of proof.

Claims for war widows' pensions will be dealt with according to the service of their husbands, except that all such claims made 40 years or more after a veteran's war or other qualifying service will also be decided on the basis of the civil standard of proof. Further details will be announced separately.

Special Rate Disability Pension

It is also proposed to amend legislation concerning eligibility for special rate disability pensions. In keeping with the Government's public commitments, the pension of existing beneficiaries will not be affected. The present provisions have been largely unchanged since they were first introduced over 60 years ago. They were intended to provide-during or immediately after a war-for very seriously injured veterans requiring special benefits because they were unable to be employed. Most Second World War veterans have now left the work force and most have had full working lives.

The legislation will be amended to provide that future applicants will be granted totally and permanently incapacitated pension only where the veteran is eligible to receive a 100 per cent general rate pension, is totally and permanently incapacitated from injury or disease that has been accepted as related to his war service and is also suffering a loss of wages or earnings from that incapacity which prevents the veteran from continuing in remunerative work.

Dependants' Pensions

The legislation will also be amended to delete from future grants of disability pension the provision of minor amounts paid to certain dependants of disability pensioners. The social security system now provides for people in these categories who are in need. Existing dependants' pensions will be frozen at the levels payable at the date of effect of the legislation. War widows' and orphans' pensions will not be affected by this change. Total savings from these several measures are expected to be $36.8m in 1985-86 and significantly more in later years.

Service Pensions

Service pensions will be reviewed regularly to reduce overpayment, saving an estimated $6.2m in 1985-86.

Veterans' Administration

The cost of providing free transport and travel allowance to pensioners will be rationalised by a variety of measures, including less reliance on the Commonwealth car pool. In addition, the administration of pension payments will be improved and associated costs reduced by the direct crediting of pension payments with limited exemptions. These measures will provide savings of around $4m in 1985-86.

Defence Re-establishment Loans

This scheme is to be terminated. It was set up to assist service people with business and agricultural ventures, but it is no longer effectively meeting its objectives, particularly in view of other measures now available. Loan applications received up to today will be processed. Savings of $1.3m are expected in 1985-86.


Defence Service Homes

The Government has decided that the private sector should take over the administration of the defence service homes loans scheme. The entitlements of those who already have or are eligible for these loans under the existing scheme will not be affected. The new arrangements, expected to apply from 1 January 1986, will eliminate the 10-month waiting period and loan amount restrictions.

Under the revised scheme, the Government will arrange for private financial institutions to provide loans which will continue to include a substantial government funded interest concession. The institutions will also be invited to take over the administration of existing loans. Savings are expected to be $60m in 1985-86 and about $120m in a full year. In the medium term, these arrangements will also allow a substantial reduction, amounting to some hundreds of staff years, in the Commonwealth sector. Details will be announced separately, and a revised home ownership assistance scheme for future members of the Defence Force will be announced later.

First Home Owners Scheme

As announced recently by the Minister for Housing and Construction (Mr West), assistance available to first home buyers under the first home owners scheme has been reduced. There will be savings of $25m in 1985-86.


In the administration of the Department of Housing and Construction, additional savings totalling $11m against the forward estimate are to be achieved in the Government's administrative operations through reductions in provisions for repairs and maintenance of Commonwealth buildings. Savings of $16.7m will also be made in the use of consultants, computing equipment and services, plant, and in general administration.


The approved planning guidance for defence outlays was for real growth of 4.5 per cent in 1985-86. Because of the budgetary situation, real growth will now be limited to 3.1 per cent. This compares more than favourably with the average annual real growth of about 2.5 per cent in defence outlays under the Fraser Government. It results in a saving of $83.9m against the Forward Estimates.


The general patient contribution under the pharmaceutical benefits scheme has not been increased since January 1983. From 1 July 1985, the contribution will increase by $1 to $5 per prescription, saving $40.3m in 1985-86 and rather more in subsequent years. Even at this level, the contribution falls well short of the average cost of prescriptions funded under the scheme.

The repatriation pharmaceutical benefits scheme will also be modified as it applies to service pension beneficiaries who receive fringe benefits and have no accepted disability. These beneficiaries will now be assisted in the same manner as are pensioners in the general community under the pharmaceutical benefits scheme. This modification will save $7.9m in 1985-86.

The Commonwealth contribution to the Health Benefits Reinsurance Trust Fund will be reduced with savings of $15m in 1985-86. The Government remains committed to the community rating principle which ensures that health insurance is available on the same basis to the whole population.

Nursing Home Benefits

The Commonwealth has decided on a number of measures in this area in the face of rapidly rising costs. The maximum level of nursing home benefits payable in Victoria, South Australia and the Northern Territory is to be frozen. The benefits payable in those States and the Northern Territory are significantly higher than in other States, reflecting the different standards imposed by governments. Similarly, the level of Commonwealth nursing home benefits payable for all State and Territory government homes is to be frozen. This latter measure does not extend to some prescribed government nursing homes run by non-profit, charitable, benevolent or similar organisations. These revised arrangements will be kept under review.

In addition, the prescribed minimum nursing home patient contribution is to be restored to 87.5 per cent of the maximum standard rate of pension plus supplementary rental assistance. These measures will provide savings of $14.1m on the Forward Estimates.

Veterans' Health Costs

New arrangements will be introduced for the supply of spectacles, dental services and the care of veterans in psychiatric institutions. This will produce savings of at least $7.4m in 1985-86.

Isolated Patients Travel and Accommodation Assistance Scheme

The patient contribution under this scheme will be increased from $20 to $30, saving $1.1m. The contribution has not been increased since the introduction of the scheme in 1978.


Pre-schools are essentially a State responsibility and the Government has decided to terminate grants to the States for pre-schools from 31 December 1985. This decision will save $16.5m in 1985-86 and $33m in a full year. Against the background of substantially increased participation rates, it has been decided to spread funds originally allocated for the final year of the participation and equity program over both 1986 and 1987 with savings on the 1985-86 Forward Estimates of $22.6m.

Planned outlays on the technical and further education capital program will be reduced by $12m in 1985-86. The Commonwealth Tertiary Education Commission has been asked to advise on the specific allocation. From the beginning of 1986, no further grants for the libraries element of the Schools Commission's capital grants program will be provided. The Commonwealth has provided earmarked funds for school libraries for many years and the Government now considers that further funding requirements can be met within the general element of the capital grants program. The estimated saving in 1985-86 is $10.8m.

Additional savings have been found by:

Reducing Commonwealth expenditure by $2.5m on special programs of assistance to schools;

tightening the eligibility criteria for student assistance and terminating the fares allowance to unmarried independent students, saving a total of $2.9m;

the announced increases in overseas student charges, providing net savings of $3.2m in education spending; and

deferring to September 1985, the commencement of construction of the Australian Film and Television School's new premises, saving $2.9m.


Expenditure on the community employment program is to be reduced by $120m on the 1984-85 Budget provision. While that represents a substantial cut in funding for CEP, it has been recorded in this statement as a saving against the forward estimate of only $10m. This is because the forward estimate for CEP only took account of the need to maintain the same rate of new project approvals as in 1984-85. In addition, the allocation for labour market programs is to be reduced by tightened targeting and priority setting. Savings of $15.8m against the forward estimate will be obtained in 1985-86.

Migrant Centres and Programs

The 1984-85 refugee and special humanitarian program provided for 12,000 assisted passage places with a decreasing number of boat people and an increased emphasis on family reunion. The number of such places in 1985-86 is be reduced by 2,000, providing savings of around $3.6m. The Government intends to sell surplus migrant centre buildings and associated land. The sale of these properties, located in the eastern mainland States and South Australia, together with a reduction in associated costs, saves an estimated $16.6m in 1985-86.


The Government is concerned at the rapid increase in Public Service staffing. In 1983-84, growth in staffing, including the full-year consequences of staff growth allowed by the former Government, was about 4 1/2 per cent. This growth rate was significantly reduced, to about 2 1/2 per cent in 1984-85. The Forward Estimates report indicates that possible Commonwealth staffing growth in 1985-86 ranges between 0.3 per cent, as estimated by the Department of Finance, and 2.0 per cent, as sought by departments. Staffing issues have not yet been resolved, but the final growth figure for 1985-86 will be closer to one per cent, thereby again halving staffing growth rates which we inherited from our predecessors. Full staffing details and implications will be provided in the Budget Papers.


Petroleum Products Freight Subsidy

From 21 May 1985, the Commonwealth will reduce the subsidy presently being paid under the petroleum products freight subsidy scheme. The reduction of up to 4c per litre in the subsidy will save $116m on the 1985-86 forward estimate. The subsidy will continue to assist consumers in remote areas where the cost of transporting petroleum products is in excess of 5.2c per litre.


The Government intends to terminate the subsidy for diesel fuel costs of Great Barrier Reef Island tourist resorts with expected savings of about $300,000 in 1985-86 and $500,000 in a full year.

The 1985-86 allocation in the forward estimates for tourist projects within the steel region assistance program is to be reduced with a saving of $4m.


The Government has been increasingly concerned at both the growing cost of the export market development grants scheme and its effectiveness. Commitments under the scheme have been rising alarmingly and due to its open-ended nature, that trend seems bound to continue. There is, moreover, evidence casting doubt on its value. In particular, it had been found that nearly 50 per cent of grant recipients actually export nothing or very little. Consequently, the Government has accepted the thrust of the report of the National Export Marketing Strategy Panel, and a revised scheme-maintaining the 70 per cent grant rate-will take effect on 20 May 1985.

For 1985-86, savings will be $48m, resulting from implementation of the new scheme and a deferral of payment of some commitments into future years when the reduced cost of the amended scheme will make less of a call on the Budget. As part of the recent review of the Trade portfolio, a reduction of 50 staff, saving $2.6m in 1985-86, is to be realised. Relevant to these decisions, I note that the recent depreciation will provide real and effective assistance to exporters.

Industrial Research and Development

The Government remains committed to providing adequate support for industrial research and development. However, spending on selected industrial research and development grants programs in 1985-86 will be held to the same money level as in 1984-85. This will reduce the forward estimate for 1985-86 by $9.6m.

Primary Industry

The Commonwealth contribution to the bovine brucellosis and tuberculosis eradication campaign in 1985-86 is to be maintained at the same money level as in 1984-85. This will result in savings of over $6m. This allocation will enable the continued steady progress of the campaign.

Other Assistance

Initiatives introduced by the Government in 1983 substantially increased the capacity of the Australian Industry Development Corporation to expand its activities through borrowings. In that light, the AIDC has now withdrawn its request for a capital instalment of $12.5m in 1985-86. The Government has commissioned a study to examine the need for a more broadly based manufacturing industry advisory service. Pending consideration of that study, the Government has decided not to proceed with the establishment of an advisory service on computer aided manufacture estimated to cost $2.4m in 1985-86.


Savings of $24.9m will be made against the forward estimates submitted for the Commonwealth Scientific and Industrial Research Organisation. CSIRO will have about the same real level of resources for ongoing activities. A cost recovery program is to be introduced in 1985-86 for services provided by the Australian Government Analytical Laboratories resulting in additional revenue of $2.3m.


The Commonwealth is to reduce the 1985-86 forward estimates for the Federal water resources assistance program by $8m. This will allow the Commonwealth to meet formal commitments and to continue projects including new water research initiatives. The Northern Territory Government has decided recently to generate electricity from natural gas, rather than coal as previously envisaged. In view of the significant lessening of future costs that this implies, the Commonwealth will reduce its assistance in 1985-86 towards meeting operating losses of the Northern Territory Electricity Commission. Under new arrangements which will phase out the Commonwealth's annual subsidy over four years, assistance in 1985-86 will be reduced by some $37m. The liquefied petroleum gas subsidy will be abolished from 1 October 1985, saving $1.4m against the forward estimate. Automotive LPG is not covered by this scheme. The Government believes that this scheme distorts energy demand and prevents the most efficient use of energy resources.


The Minister for Transport (Mr Peter Morris) has recently introduced a Bill for a new, five-year transport program to replace the Roads Grants Act. The total provision for roads under the Australian land transport program and the Australian bicentennial road development program represents savings of $60m against the Forward Estimates. In addition, following improved financial performance, the operating subsidy payable to the Australian National Railways Commission will be reduced by an estimated $5.6m. Savings of $5.3m will be achieved against the forward estimate for the Tasmanian freight equalisation scheme.


The Government has decided not to renew the Western Queensland air services subsidy scheme and the Melbourne-Tasmania air fare subsidy. The estimated 1985-86 cost of these subsidies was $7.5m and is additional to the total savings detailed in this statement. Provisions in the forward estimates for the aerodrome local ownership plan are to be reduced by $7m in 1985-86 to reflect the current state of progress on negotiations with local authorities. The Forward Estimates provision for plant and equipment in 1985-86 for airports and airways services is to be reduced by $7.3m. In line with the Government's emphasis on a more commercial approach to airport management, initiatives have been taken to expand business concession revenues which will reduce Forward Estimates by around $9.6m.

As recently announced by the Minister for Aviation (Mr Peter Morris), the development of Darwin Airport is being reappraised. Estimated savings against the 1985-86 Forward Estimates are $36.8m. Rescheduling of expenditure on other airport projects at Brisbane, Townsville and Sydney is expected to reduce estimated spending by a total of $14m. It is not expected that the planned commissioning date of late 1987 for Brisbane Airport will be affected.


The global 1985-86 funding for the Australian Broadcasting Corporation is to be limited to $395m, a saving of $7.9m against the forward estimate. Funding for the Special Broadcasting Service in 1985-86 will be $46.5m, a saving of $3.5m against the forward estimate. The Government has indefinitely deferred the extension of the SBS to Darwin resulting in a saving of $0.5m. There will also be additional savings of $2.5m against the forward estimate on the amount to be provided in 1985-86 for the installation of new transmitters for the ABC and SBS. The Government has also decided that the funding of national broadcasting requires further examination and will be reviewing this issue in the near future.

Pending a full review of existing arrangements, the net payment in 1985-86 to Telecom Australia for operating and maintaining ABC transmitters will be set at $50m, a saving of $3.5m against the forward estimate. The Government has decided that the Australian Telecommunications Commission is to repay $35m in 1985-86 of interest-bearing Commonwealth advances. This will not be at the expense of an increased borrowing requirement and, in accordance with established practice, the repayment will offset outlays in this function.


The Government has decided to sell the Belconnen Mall in Canberra. As in so many other areas, this Government will do what the previous Government failed to do. The Government has also decided that the planned Tuggeranong Town Centre in Canberra should be developed and operated by private interests. This will enable an early start on proposed additional community facilities. These measures together will provide savings in 1985-86 estimated at about $72m. The decision on the Tuggeranong Town Centre will also avoid the need for additional Commonwealth borrowings amounting to about $30m.


As the Minister for Aboriginal Affairs (Mr Holding) has announced, operations of the National Aboriginal Conference will not be extended beyond 30 June 1985.

Senator Chaney —Shame!

Senator WALSH —I note the interjection. This decision will save $8.6m against the forward estimate. An alternative representative national Aboriginal body will be established and funded from the global allocation available to the Aboriginal Affairs portfolio.


For 1985-86, general purpose assistance to local government is to be limited to a 2 per cent increase in real terms over 1984-85 levels. This increase exceeds that provided in the previous two years but still represents a saving of around $62m from the 1985-86 Forward Estimates. The issue of longer term arrangements for the funding of local government is currently being examined by the National Inquiry into Local Government Finance which is due to report after the 1985-86 Budget.


Government decisions will result in administrative savings in a number of areas. The main measures are set out below. Savings of $6.5m will be achieved by improvements in the management of overseas property holdings, involving the sale of some surplus property and economies in managing the remainder. Savings of $4.6m will be achieved by a rationalisation of the existing Commonwealth vehicle fleet, aimed at a 5 per cent reduction in the overall fleet size.

The Government has been increasingly concerned at the resources devoted to the provision of material under the freedom of information legislation. The cost in 1984-85 is estimated to be $20m, involving about 300 full time staff. Charges will be increased to recover a greater proportion of costs, and staff savings will be made, leading to a total saving of $5m in 1985-86. The Attorney-General (Mr Lionel Bowen) will shortly announce the new charges.

The Government has decided that under-used defence land and buildings to the value of $15m are to be disposed of in 1985-86.

From 1 January 1986, payments to Australia Post to cover the costs of Customs inspection of overseas postal articles will be discontinued. Costs of importing through the parcel post will henceforth be borne by users. Savings are estimated at $2.4m in 1985-86.

Senator Puplick —That's a nice subsidy for the drug smugglers, isn't it?

Senator WALSH —It used to be, but it is going to be stopped.


Expenditure by the Parliament House Construction Authority in 1985-86 will be limited to $154.1m, a reduction of $15.9m on the Forward Estimates. This reduction will also help to ease serious capacity pressures in the Australian Capital Territory construction industry.

The Government had decided not to conduct habitation reviews to update the electoral rolls in 1985-86, saving $2.8m.


Director of Public Prosecutions

Savings of $5.6m will result from revised procedures for committing legal expenses. This will not impact on the Government's ability to prosecute major tax fraud offenders, something which I imagine the Opposition will be disappointed to hear.


The Government has decided to reduce the forward estimates for the 1985-86 aid program by $23.9m. The allocation of the program will be announced later, in the normal way. There will be a decrease in 1985-86 in the ratio of official development assistance to gross national product, but all formal obligations for discharge in 1985-86 will be met.


The decisions that I have announced tonight take their place in the Government's overall approach to economic policy, including monetary and wages policies. There has been much ill-informed comment about monetary policy since the Government's decision in late January to suspend the M3 monetary projection for 1984-85.

It should be clear to anybody who has monitored monetary developments since that time that the Government and the authorities have not departed from the firm non-inflationary monetary policy stance which has characterised this Government's period in office. The M3 projection was suspended because that aggregate-indeed the monetary aggregates in general-was not providing a reliable guide to financial conditions. Unfortunately, but unavoidably, that continues to be the case.

Australia has been undergoing major institutional change in its financial sector, much of it stemming from deregulation of the banks and other financial institutions and of foreign exchange dealings. These changes have widespread support. They will undoubtedly improve the Australian economy and the living standards of all Australians. For the present, however, they complicate the conduct of monetary policy. In particular, the M3 aggregate is badly flawed as a monetary indicator and is not maintaining a reliable relationship with trends in the real economy.

Current circumstances in Australia-just as similar circumstances in periods of financial innovation and deregulation in the United States, the United Kingdom and elsewhere-lower the weight that can be put on the monetary aggregates. A considered assessment of a wide range of indicators is called for. As the Treasurer said in January, the future of the practice of conditional projections-and the more general issue of the prominence to be attached to such aggregates in conditions of change and uncertainty-will be determined prior to the forthcoming Budget.

Meanwhile, it should be clear to all that financial conditions have firmed in recent months and that policy has played its part in that firming. This was appropriate in the light of the apparently rapid growth in the demand for credit and the earlier sharp weakening in the Australian dollar. This firmer stance for monetary policy will be maintained so long as it is required. With that in mind, the Treasury will be announcing the details of a bond tender for an amount of $1,200m on 23 May.

I now turn to the important subject of wages policy. The right wages outcome is essential if we are to maximise the gains and minimise the costs to the Australian dollar's depreciation. This Government's accord with the trade union movement provides a mechanism through which a wages outcome, consistent with continued strong growth in the economy, can be achieved. Such an outcome must involve a lesser real wage level during the adjustment period than would otherwise have applied.

We have been examining options and are discussing them with the Australian Council of Trade Unions. Clearly, the required objectives could be achieved by discounting the consumer price index for wage adjustment purposes to the extent that price increases were due to the devaluation, or by delaying the implementation of any productivity increase. In considering this issue, it is important to appreciate the factual uncertainties surrounding it. As we have so clearly seen, floating exchange rates are very volatile. Nobody can predict just where the Australian dollar will settle or move in the period ahead. Nor is it possible to predict with any certainty what effect a given depreciation will have on prices. The price effect is subject to variable lags and depends on sourcing options and supply and demand conditions.

It is fairly clear, however, that there was little impact on prices in the March quarter. While a larger part of the price effect may show up in the current quarter, on the basis of past experience the full impact of the depreciation will come through over a longer period. Against this background it is the Government's view that the wage indexation case should proceed as normal in September under the principles. As for any productivity increase, however, it is our view that the questions of the size, timing and phasing of any such increase should be deferred until the scope of the depreciation and the extent of its effect on the economy becomes apparent.


The decisions announced tonight make clear the Government's approach to the 1985-86 Budget. These decisions will inevitably be unpopular with some members of the community. But the consequences of not facing up to priorities this way would put continued recovery in the Australian economy at risk.

For too long, tough, politically unpalatable decisions were put off in this country, because our predecessors did not have the courage to take essential hard decisions. When it came to the crunch, they put their short term political interests first. As a result they allowed the economy to career into recession with the burden of their irresponsibility falling on those who could least afford it. Inflation ravaged savings and living standards while hundreds of thousands of Australians were thrown out of work.

This Government believes it has a responsibility to all Australians to run the economy in the national interest, and a particular responsibility to those sections of the community which are least able to protect themselves. In our first two years we did not flinch from the decisions that we knew had to be taken and we have not done so in the preparation of this statement tonight. We have the courage to put the national interest first and we have the confidence that our decisions will be justified by the national economic performance in both the medium and the long term. If there is a short term political price in these measures, we are prepared to live with it. For in the long term Australians will know that our stewardship of their affairs will have provided them with growth, with jobs and with opportunities which for so long have eluded them. They will remember that Australia's new prosperity was provided by an Australian Labor Government. I move:

That the Senate take note of the statement.

Debate (on motion by Senator Chaney) adjourned.