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Wednesday, 15 May 1985
Page: 1990

Senator WALSH (Minister for Finance)(3.23) —I thought Senator Chaney was going to speak about wages. Apparently, it was only in the last couple of minutes that he remembered he was supposed to be speaking about wages. In fact, he spent almost all of his time going through a re-run of Question Time. The line laid down by the Liberal Party leadership is that the expenditure cuts announced last night are illusory, puny and generally meaningless. Below the leadership level which is defined as the Leader and Deputy Leader in the House of Representatives and the Leader in the Senate, the assertion is that if all these dreadful things are done Christian civilisation as we know it will no longer exist. As I said at Question Time I wish the Opposition could make up its mind on its assessment of the statement.

Senator Chaney attempted to berate me for misleading the Senate last week-I do not think he quite used those words although that was the clear implication of what he said-when I said that the statement on government expenditure savings would not include tax increases, with one possible exception. That was subsequently ruled out. I said that it would not include tax increases but would include reductions of the Forward Estimates of expenditure. Senator Chaney, or whoever it was in the Opposition who asked the question, has now amended his question. The question asked was whether the economic statement would include tax expenditures. I said, that with one possible exception, it would not. I said it would involve reductions in the Forward Estimates of expenditure. The question has now been amended to relate to taxes and charges. The original question related only to taxes but it has now retrospectively been amended to include taxes and charges. At no stage did I say there would be no increase in charges. We have strictly followed the accountancy rules throughout this exercise. Charges which are off-sets to services provided are, by the conventions adopted by this Government, by the previous Government and by most of the countries with which we normally compare ourselves regarded as off-sets to outlays, are off-sets to outlays and therefore, are regarded as reductions of outlays.

There is a clear conceptual difference between a charge levied for a service and a tax. I am sure that that is a conceptual difference of which Senator Chaney is well aware. However, the implication of Senator Chaney's statement is that the Opposition believes that charges for services provided should never be increased. Certainly a significant additional amount of money, but insignificant in percentage terms, was included in the statement last night in cost recovery increases. From memory, I think the figure was $37m. Almost, if not entirely without exception, those cost increases are approximations of the consumer price index increases since those charges were last adjusted.

Senator Chaney said that some $200m of the total amount of $1,259m represented the sale of assets and increased charges. I do not actually have the analysis of those figures with me but that figure sounds reasonably correct. Although I covered that matter in Question Time perhaps I need to repeat it. That is so. However, we stuck to the accountancy rules. Under the accountancy rules those items are included legitimately as reductions in the Forward Estimates of expenditure. Even if all of those were deducted the reductions would still be more than $1 billion. If someone wants to argue the conceptual validity of those international accountancy standards that is another matter.

As I pointed out in Question Time, on the other side of the ledger we did not attempt to include in the statement the more than $110m of the $120m reduction in the actual expenditure on the community employment program next year as against this year. If Senator Chaney wants to deduct that $200m attributable to increased charges and the sale of assets-I certainly do not accept his assertion about the increased charges-he can do so. If there is a case to be put for the deduction of the sale of assets components of the statement the same sort of case can be put for the addition of the $110m from the community employment program.

More importantly perhaps, we did not count the long term significance of a couple of fairly small outlay items which are reasonably small in the 1985-86 Budget but which will become extremely important in later years. I will cite two of those. Firstly, I mention the proposed changes to entitlements to benefits of dependants or relatives of deceased servicemen. The High Court of Australia in two judgments, the Nancy Law case and the O'Brien case, effectively ruled that the lung cancer from which an ex-serviceman had died, I think some time in his late sixties, was attributable to smoking. The High Court noted that the ex-serviceman had started smoking when he was in the war and concluded that the Government failed to prove beyond all possible doubt that he had not started smoking because he was a member of the Services. The High Court accepted without any difficulty at all the logical broad jump that because he was a smoker he died of lung cancer after his service and necessarily because of it. I though that was generally regarded as one of the fundamental logical fallacies which every first year student was told about. Leaving all that aside, what the High Court effectively said was that the dependant of a person who died of lung cancer-in this case, the bereaved spouse-was just as much a war widow as the widow of somebody who got shot in the head at Tobruk in 1942.

I must say that I find the logic of the High Court difficult to accept. I am also concerned that the power of the Parliament is continually eroded by the judiciary which has no responsibility for the fiscal implications of the decisions it makes. Leaving all that aside, the Government decided that since the Court refused to take the matter into account, in interpreting the law in the absurd way that it did, something had to be done about it and we have proposed amendments to the veterans' affairs legislation. In the first year the savings of Forward Estimates are some $7m. In the next year the estimate is $33m. In the following year it is $78m. I am not sure what the nth figure is, but the nth figure is some hundreds of millions of dollars. That is the long term effect of a fairly small item which was included in last night's statement.

Senator Chaney referred to child care and was critical of the decision to decrease expenditure by some $15m. He noted that the commitment to an additional 20,000 places had been reaffirmed and that, therefore, the $15m savings would have to come from other areas. That is true. The way in which the $15m will be achieved is through a reduction in the average subsidy paid. I am glad that Senator Chaney brought this up because I think it is a matter on which some more detail could be given. Child care costs are highly variable-that is, the real costs-depending on whether it is family day care based child care, which I think is the term used, or institutional child care. The social cost of providing those services varies between an average figure of something like $35 a week for the former and $100 a week for the latter.

The amount of subsidy paid to the users of those services also varies and is related to both the actual cost of providing the service and the income of the user, with one significant exception. Regardless of the level of income, nobody in institutional care is charged more than $60 a week-I think that is the figure; it is certainly of that order-regardless of the cost of providing the service. I would have thought that Senator Messner could readily work out that when there is a ceiling on the charge to the user, regardless of the cost to the supplier-in this case, the taxpayer-the demand curve might be somewhat skewed and distorted towards demands for gold-plated child care.

Senator Messner —You are using very rough figures. The figure is actually higher than $60 in most cases. Anyway, you go on and make your speech.

Senator WALSH —The maximum fee which can be charged in institutional care is $60 or $65. These present arrangements are skewing the demand-this is, from users and potential users-towards the highest cost form of child care and to a form of child care which, with some modifications, is a very complicated area and which tends to favour the higher income groups. I had some projections done on the cost of an extension into the future of the present policy with its present average costs per child care place provided. The answer which came out was of this order: If all responsible parents-I think that it was the term used-presently in the work force and with pre-school aged children were provided with those child care facilities at the average cost now prevailing, the bill to the taxpayers would be $500m in recurring costs and an additional $500m in capital costs. If all of those parents with pre-school aged children-whether they are in the work force or not-were to have such a service provided those figures increase to $1.5 billion in recurrent costs and $1.5 billion in capital costs. Faced with that sort of exposure, a decision was made that the average cost, at least, to the taxpayer-if not the average cost to taxpayer plus user-of the services should be reduced. Hence the origin of that saving. Again, the long term implications for government outlays of that policy decision which appears in last night's statement as $15m probably amount to some hundreds of millions of dollars.

I turn to a couple of the other points which Senator Chaney raised. I gather, from the remarks that he made about expenditure on new policies, that the Opposition believes there should be no expenditure on any new policies. That means-I am sure you, Mr Acting Deputy President, would be interested in this-that there must be no assistance whatsoever to the sugar industry. It appears to be Senator Chaney's policy-presumably it is the Liberal Party's policy-that there must be no new expenditure at all. When the Government is, as it probably will be, accosted by the Premier of Queensland with hysterical demands for the keys to the vault on an ad lib basis, it might be useful to be able to say to him: 'The Liberal Party said that we must not spend anything at all on new policies'.

Senator Chaney drew attention to the position in regard to the Northern Territory and said that if we multiplied the Northern Territory savings by the number of electorates in Australia, or words to that effect, $10 billion would have been cut off the Forward Estimates. That arithmetic sounds about right to me. I am not sure that it would be $10 billion, but it would be a very large amount. The answer to that is that in other States one does not have the examples of fat and waste hanging around that there is in the Northern Territory. For example, I do not think there will be too much of a political squeal in the Northern Territory today because most of the Ministers in that Government are overseas. It is typical of the behaviour of governments that the less responsibility governments have for raising the revenue they spend, the more irresponsibly they spend it. Since the Northern Territory has, by a very wide margin, less responsibility for raising revenue-I think that some 90 per cent of its total funds come straight through the cash pipeline from here-it displays less responsibility in spending that money.

A major element-in fact, about half-of the reductions in the Forward Estimates for the Northern Territory announced last night was a reduction of the electricity subsidy. It is a fact of life that electricity is an innately high cost item in the Northern Territory because it is produced by oil. Accordingly, Northern Territory consumers should adjust their consumption patterns through a charging system which recognises the innately high cost of providing the service. Until very recently the Northern Territory received an electricity subsidy in excess of $500 per capita. Simultaneously the Northern Territory levied charges lower than those which applied in the city of Perth which received no Commonwealth subsidy at all for its electricity charge.

I am surprised, to say the least, that Senator Chaney chose fit to defend the pre-existing financial arrangements for the Northern Territory. I have already stated in the Senate that if one projects forward the averages for the last five years of growth in payments to the Northern Territory and growth in the Australian economy, in 138 years time the entire output of the Australian economy will be consumed by the Northern Territory. That is an arithmetic exercise and I assure honourable senators that it is correct. Obviously, of course, it will never happen but it illustrates the point that sooner or later some government would be forced to do something about it. This Government has decided-as it has in many other areas-that it will be the government which will take decisions which are in the long term national interest.

Finally I refer to wages. Mr Howard has already acknowledged publicly that the effect of the Australian dollar devaluation in the March and June quarters on the consumer price index will be quite small. It is the March and June quarters which are relevant to the next national wage case. The Government has therefore decided, the Treasurer (Mr Keating) and, I think, the Minister for Employment and Industrial Relations (Mr Willis) announced it last night, that it would not argue for a discounting of the CPI figure because of the devaluation factor at the next-that is, the September-national wage case. This is because firstly, it will be quite a small amount at that time and, secondly, the value of the dollar has been going through a period of instability and it is not, I believe, at all clear at what level it might ultimately settle. If a government were to argue for a discounting of the CPI because of the effects of the Australian dollar being 68c as compared with the United States dollar, it would be logically obliged to argue for an add-on, negative discounting, at every subsequent national wage case hearing if the value of the Australian dollar moved upwards. It will not be a particularly important issue at that time. The corollary of that decision is that the Government will argue that the productivity case should be postponed for the time being. The likely effect of that is that the deferral of the productivity case-I know that all this is rather speculative-is likely to have more effect on the outcome of the September national wage hearing than the decision not to argue for discounting the CPI because of the devaluation effects.