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Wednesday, 18 February 1987
Page: 176

Senator WALSH (Minister for Finance)(3.23) —It has been observed in recent days-including, among others, by many members of the Opposition-that the Premier of Queensland has a record which is diametrically opposed to his rhetoric. We have just seen a demonstration of the same phenomenon by Senator Chaney. One thing that Senator Chaney said is true. Australia has severe economic problems, the most severe that we have had since the 1930s, and as a consequence in the short term there is no responsible alternative to a decline in average living standards. That is true. I will explain some of the reasons in a moment why this has happened. The response to that fact, according to Senator Chaney, is to reduce government expenditure. I do not know whether the Australian Democrats will have the audacity to put forward that proposition as well because, as they never cease to remind us almost all the time they are voting, or voting by themselves in particular, they are voting to increase government expenditure. I will listen with interest to see how Senator Haines deals with this matter.

Senator Chaney, for the Opposition, says that government expenditure must be reduced, as does Sir Joh Bjelke-Petersen. But let us look at what the Opposition is actually advocating. It is advocating that the tax deductible Mercedes should be brought back; that the tax deductible boozy lunch should be brought back; that pensions should be paid to millionaires; that what it euphemistically calls incentives to invest in collectables instead of production should be brought back; and that there should be flatter tax with a maximum rate apparently of 35 cents in the dollar-a list of propositions which collectively would blow out the Budget deficit to about $10 billion. All those factors that I have mentioned would aggravate the current account deficit which is the most critical problem we currently face.

The Opposition proposes as savings options the modification of Medicare, with an opting out provision. The people who would opt out of paying the levy, of course, would be the young, the fit and the healthy. The consequence of implementing that policy would be to blow out the deficit by another $900m. The Opposition also proposes as an expenditure cut making three days a week training compulsory for people who receive unemployment benefits. That would add $600m to both outlays and the deficit. So the policies that those opposite advocate are in total contradiction to the rhetoric that pours out of their mouths. They have identified so far $32m of expenditure cuts while simultaneously promising almost $1 billion in increased expenditure. (Quorum formed) I can understand Senator Michael Baume's reluctance to have the facts about this matter revealed.

The one true statement that Senator Chaney made was that the Australian economy is confronted with very severe problems. Indeed, he could have added correctly that they are the most severe problems since the 1930s. That is attributable to a variety of reasons. Most of all it is attributable to many decades of neglect and mismanagement-in the 1950s and 1960s by the pernicious manipulations of the then Country Party Leader McEwen; in the Labor Government interregnum it is freely acknowledged that that Government's economic management policies were fallible; and then many years of culpable neglect under the Fraser, Howard duumvirate. The Business Council of Australia, in the report to which Senator Chaney has already referred, attributed our problems to:

The stifling impact of industry protection and business regulations on management attitudes, innovation, and entrepreneurship.

Inhibition of a `common sense of purpose between employee and employer caused by a central arbitral system based on adversarial relationships'.

That is exactly the sort of attitude of mind that was encouraged and exploited by the Fraser-Howard Government. The BCA continued:

Reliance on overseas borrowings caused by a resources boom.

Again, this was directly attributable to the Fraser- Howard years when the Fraser-Howard duumvirate launched a free-for-all for the States in overseas borrowings for the resources boom which never happened, the hangover of which is with us still. The BCA went on:

A wages boom in the early 1980s that further eroded Australian competitiveness at a crucial time.

We know about that-an 11 per cent increase in wages in 1981 and 14 per cent in 1982. That was the legacy which we inherited. Not until the election of this Government had any government attempted to redress the structural defects of the Australian economy. So for long-standing historical reasons the economy is in trouble and superimposed upon that weak base is an export price collapse which has taken $5 billion or $6 billion off our national income. The consequence of all that is that there is no responsible alternative to a decline in average real disposable incomes in the short term.

The response of the Opposition, however, and its leader in particular, is to promise big increases in after tax income by introducing lower rates of tax and flatter tax. He furiously peddles the illusion that in these circumstances average living standards can rise. That is the opposite of the truth. Howard is performing an act of social and economic sabotage as dangerous and irresponsible as anything that George Crawford or his ilk could ever aspire to. Everyone knows that the Queensland Premier proposes to cure economic ills with snake oil. Less well known fortunately, and to some extent because of the Queensland Premier, but becoming better known is that John Howard and the Opposition have also been pushing snake oil, albeit a slightly watered down version of that which is being dispensed by the cargo cultist from the Deep North.

I refer to a table that was published in today's Age, based on information from Professor Porter's Centre of Policy Studies, which, for this purpose, should be an impeccable source because this outfit is one of the Liberal Party's private economic analysts. It did $1m worth of economic research for the Liberal Party.

Senator Chaney —I thought that you had just dumped them. You just withdrew their funding. Why are you quoting them?

Senator WALSH —Senator Chaney interjects. Perhaps I should respond by pointing out that Professor Porter is another great advocate of reduced public expenditure. Indeed, he says that some $9 billion should be cut from public expenditure. I did a little exercise on this. Professor Porter had his grant of $500,000 cut. He has complained so long and loud that in the last couple of days his complaints have filled up a total of 18 million pages of broadsheet print. A total of 18 million pages of broadsheet print has been used reporting Professor Porter's complaints about the loss of $0.5m, yet he wants $9 billion cut off public expenditure. If every $0.5m were to produce so much complaint and the consumption of so much paper reporting those complaints, 324 billion pages of broadsheet newsprint would be required-that means about 20 million tonnes of newsprint. Some of that would be imported and we would have to add that to the current account deficit as well.

The analysis that Professor Porter's organisation put up shows that the Liberal Party proposed to cut direct tax receipts by $10.5 billion which would be partly offset by indirect tax receipts of $4,800m, leaving a credibility gap of the order of $6 billion. But since that happened the National Party has vetoed the value added tax which the Liberal Party planned to introduce. So the Liberal Party is now left with a credibility gap, not of $6 billion but of $10 billion because the National Party has vetoed the VAT that the Liberal Party proposed to introduce. The Liberal Party has weakly complied with that directive from the Deep North. In addition, the Opposition has promised to increase expenditure in various ways by about another $1 billion and simultaneously to eliminate the deficit.

If it is not too horrible it might be worth spending a couple of minutes speculating about government in Australia under a non-Labor successor to this Government. It would go something like this: We have two alternatives as Prime Minister at the moment-Sir Joh Bjelke-Petersen and Mr Howard. If Sir Joh could become Prime Minister something like this would happen: Senior bureaucrats would be called together and he would say: `Flat tax, flat tax, we are going to have flat tax'. The senior bureaucrats would say: `But Prime Minister, if we introduce your flat tax policy we will have a deficit of $16 billion'. He would say: `Don't you worry about that. That will be all right'. The Treasury would then attempt to sell $16 billion worth of government securities, as a result of which interest rates would rise to something like 30 or 40 per cent. Sir Joh would then call in his senior bureaucrats and say: `Interest rates have to come down'. Then someone would tell him, probably a member of his white shoe brigade, that if the Treasury were to cease trying to sell $16 billion worth of government securities-in other words, run an unfunded deficit-then interest rates would fall. So they would for a while until hyperinflation caught up with us. That is the scenario with Sir Joh.

The scenario under Mr Howard would go something like this: (Quorum formed) As I was saying, the scenario under Mr Howard would go like this: Senior public servants would meet Mr Howard and explain to him that the policy commitments, particularly on the tax side, which he had given and which the National Party had modified, would cause the deficit to blow out to $10 billion. Mr Howard would say: `Don't you worry about that. We had that before when I was Treasurer'. That is the scenario under Howard, a $10 billion deficit, while under Bjelke-Petersen it would be a $16 billion deficit. I make those points for the very important reason that they draw attention to the fact that the difference between Howard and Bjelke-Petersen is a difference of degree only. It is a difference of degree of fiscal irresponsibility-the difference between a $10 billion deficit and a $16 billion deficit. Some people might feel sorry for Mr Howard, and in my more charitable moments even I do, for this reason: He is under simultaneous and permanent attack from both the responsible Right-that is, the John Hyde group-and the ratbag Right, personified in the media by people such as Katharine West and Des Keegan and in general by the rednecks of the Queensland National Party, most prominent among whom, of course, is the Premier.

Senator Chaney gave us a rather boring recitation about the alleged faults of this Government but, since he has brought that in, I might give a concise and highly relevant recitation of the faults of John Howard as Treasurer and, in particular, the big trifecta that John Howard brought in when we had double figure inflation, double figure unemployment and more than double figure wage increases. The big trifecta which John Howard brought in and which no Treasurer in history had ever done at the same time was to have inflation above 10 per cent, unemployment above 10 per cent and wages growth above 10 per cent. In the end, of course, he presided over the worst recession the country has seen since the 1930s. I want to take up two other points which were raised by Senator Chaney. Firstly, he said that for only five months of the Fraser Government was the unemployment rate higher than it has been on average under this Government.

Senator Chaney —That is not what I said.

Senator WALSH —He said something like that. Something like that is true. It is also meaningless, because it happens to be a fact that for every month of the Whitlam Government the unemployment rate was lower than it was on average under the Fraser Government. In other words, the point there is that such figures are affected by the base which one inherits, and the base which we inherited from the Howard treasurership period was an unemployment rate of some 10 1/2 per cent.

The second point was that Senator Chaney asked the rhetorical question: Is a car essential? He then spoke about the fringe benefits tax. To the extent, if any, to which motor vehicle sales have fallen because of the fringe benefits tax, it demonstrates that there was no functional economic need for the purchase of those vehicles in the first place. In other words, the spending on business vehicles which fell into that category was consumption spending misdefined as investment. It is that sort of distortion of the tax system, misallocation of investible resources and distortion of investment decisions that has helped to get this country into its present plight.

The DEPUTY PRESIDENT —Order! The Minister's time has expired.