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Thursday, 19 February 1987
Page: 302

Senator MICHAEL BAUME(5.58) —In discussing the mismanagement of the Australian economy under this Government, let us get one thing absolutely clear: It is a nonsense to try to pretend that it is all bad luck and that this has all suddenly happened because of an unexpected deterioration in the terms of trade. That is the arrant bunkum that is being spread around by a government which is desperate to look for an excuse, as it always is, for its own incompetence. The fall in the terms of trade was clearly warned of by the Treasury in Statement No. 2 of the Budget Papers two years ago. There was a clear warning that this Government chose to ignore. In fact, what has happened to this nation is a direct consequence of ignoring the clear warnings, given not only by the Treasury itself, but by this Opposition, by experts in the financial markets and by experts overseas. But this Government knew more; it knew everything; it could handle it all. It could in fact carry on in a ratbag and irresponsible way, as this Government did, in the hope that if things did go badly it could then blame something else. So it is blamed on something else. It is said that it is all the fault of a worsening in the terms of trade, something that was clearly warned of by the Treasury and by any expert in this area.

Let us look at what this Government was saying just a couple of years ago in an extraordinary document called `The Accord: the First Two Years', in which the Government congratulated itself on its extraordinarily clever management of the Australian economy, because it said that it had been able to prove that the rest of the world was wrong and that it was the only nation in step. It said that it was the only nation to discover the way in which one could solve inflation and unemployment at the same time and how one could have massive economic growth without the consequences that inevitably have flowed from that economic mismanagement-that massive increase in government spending, that reckless disregard for economic reality. This publication, which describes the accord as a `bold and innovative' approach to economic management, said:

. . . the Accord strategy has been the foundation of Australian economic management.

So now we know what to blame-the accord. The publication goes on:

With the Accord the improvement in our economic performance has been remarkable-

That is ironic, is it not? It continues:

. . . with record growth, falling inflation and dramatically rising employment. Living standards have been maintained or improved, with the main improvements targeted at those most in need. Because of the Accord the Government has been able to reduce unemployment and increase the social wage without fears of worsening inflation.

Is there, and has there been, any greater nonsense than that? And how speedily disproved it was. The important thing is that not only did the Government smart-Aleck about how it had the answer; it also smart-Alecked about how every other country was totally out of step. I quote from the same accord document:

In following this course, in contrast to many other countries, the Australian Government is determined not to revert to the orthodox response to devaluation of using contractionary economic policies to reduce inflation. It also rejects calls for the dismantling or destruction of our wage indexation system. Wage indexation systems overseas have been recently interrupted or suspended, with no one system escaping unscathed through the 1980s.

In other words, the thing that distinguished Australia from the rest of the world was the fact that Australia was the only nation out of step and that this Government's policies were deliberately aimed at doing the impossible-and it proceeded down that track, despite what events in the rest of the world were clearly showing even the most incompetent of observers.

I wonder whether the Government, in ignoring what was happening in the rest of the world was, incompetent or mischievous. Surely it was not as incompetent as all that-it could not have been. It could not have believed the nonsense it was putting out in reports like this, which are now shown to be disastrous. The important thing for the people of Australia is that whatever the motives-and I presume that they were the vulgar political ones that one could expect from the people opposite-no matter what the ultimate cost to Australia, and we are now paying that cost, the reality is that the Government proceeded with these policies and boasted about them. It boasted about how it was the only one in step at a time when it was clear that those policies would lead to disaster-and they have led to disaster.

Having seen the Government's boast, let us now look at reality. Instead of all the things we saw in that report on the accord, we now see that interest rates have gone up, that inflation has gone up, that taxes have gone up, that debt has gone up-but that the dollar has gone down. The only thing that has gone down has been the dollar. This means that the living standards of every Australian family, farmer, and small business person have been squeezed. Naturally and sensibly, they are crying out for a change of government and they want the failed Labor experiment to end. I stress: The problem was not simply because there was a well-predicted worsening in the terms of trade. It was because the Government persisted with smart-Aleck policies which were doomed to failure and which failed. Let us see what has happened to economic growth-the basis, the engine room, on which employment and everything else depends. We have had negative or negligible economic growth over the last year. There was something like a 0.5 per cent growth in the 12 months to the September quarter, and this is the first effective contraction since the middle of the disastrous drought and world economic recession of 1983.

What has happened to inflation? Instead of going down, it has risen dramatically. The accord document said: `Don't worry, we know how to fix this without running the risk of worsening inflation'. But what has happened? Inflation has risen dramatically, particularly since the last election when it was about 5 per cent. It is now just under 10 per cent. This is dreadfully serious; it is absolutely disastrous for Australia. To hear a man like the Minister for Finance, Senator Walsh, who is supposed to have a responsible position, say `Oh, but it is not nearly as bad as it was under the previous government' establishes very clearly to this chamber and to the people of Australia what self-deception, self-delusion, and stupidity are guiding this country. What Senator Walsh studiously avoids is the fact that we now have the worst relative inflation rate in Australia's history. Never before while the figures have been collected have we had a situation where Australia's inflation rate and its costs are going up at such a massive rate relative to the rest of the world.

Although Senator Walsh is seeking to mislead the nation about the reality of inflation, which he does consistently because he has great difficulty in distinguishing between fact and faction-and perhaps one should not criticise him because no doubt it is some inherent defect that prevents him understanding the difference between reality and the sort of rubbish he spreads around this chamber-the fact is that we now have an inflation rate near to 10 per cent while the inflation rate in the Organisation for Economic Co-operation and Development is just over 2 per cent. Ours is five times as bad as the average inflation rate of the developed world. People like Senator Walsh come in here and try to pretend: `Ah, but it was worse under the previous Government'. Let us test Senator Walsh's integrity in his use of figures. Let us look at 1982-83, when Australia's inflation rate was 11.5 per cent. What was the OECD's rate? It was 6.3 per cent. In other words, Australia's rate was far less than double the OECD rate. It is now five time as high. Yet people like Senator Walsh deliberately and mischievously seek to mislead the people of Australia about the seriousness, the disastrous situation, in regard to inflation that now affects us.

I do not know whether ever before in our history we have had such a relatively bad inflation rate. All I know is that since the OECD was formed 25 years ago, the figures have never approached anything near the disastrous situation we now face. This represents another broken promise. What did the Prime Minister, Bob Hawke, AC, MP, say on 20 November 1984? I shall quote what he said as it was appropriate at an election time. He said:

We expect inflation will be less than five per cent in the year ahead and we are determined to keep it below five per cent.

That is just another of Bob Hawke's promises that are recklessly indifferent to the truth.

Senator Lewis —What about the trilogy?

Senator MICHAEL BAUME —What trilogy indeed? But let us stick to these promises relating to specific things like inflation where he has just proved himself to be 100 per cent wrong. Instead of 5 per cent inflation, it is 10 per cent inflation. He was prepared to say anything, like Senator Walsh, in order to win an election. Can one believe this man? The reality is that obviously one cannot.

Let us have a look at the balance of payments and the current disasters that are happening there. In this booklet on the accord the Government said these things would not happen because it knew what it was doing. In May 1986 Paul Keating said:

Overall, 1986 is emerging as a year of slower, but still satisfactory growth, a year in which we see consolidation of the very strong gains of the past three years and in which the economy can deal with the imbalance of our external account.

Mr Keating said he could deal with it, but it has dealt with him. It is now an absolute and unmitigated disaster with the latest monthly figures confirming the fact that the Government's nonsensical claims about having resolved this problem are absolute bunkum. We are not exporting enough and we are importing too much. The main reason for the disastrous look of these figures is the massive interest bill which emerges from the fact that under this Government our foreign debt has trebled. The Government cannot go around blaming the previous Government. It has been in office for four years now; for four years it has misdirected the economy of this nation. In the accord booklet the Government has told us that it can fix everything, that its policies, although totally contradictory to those of the rest of the world, are the only ones that are right. Now we see the price.

The current account deficit-that is, our relations with the rest of the world-as a percentage of gross domestic product is the highest in 35 years. We have the worst situation on our external payments relationships overseas in 35 years-6.2 per cent. There is only one nation in the Organisation for Economic Co-operation and Development that is worse than us, and that is Norway. The forecasts are that Australia will remain the second worst in the developed world in the current year. The January deficit certainly shows that the previous two months were a false dawn, despite the fact that they were so enthusiastically welcomed by the economic illiterates on the other side. There is no significant improvement in prospect and, if Mr Keating still talks and thinks about the J curve, I recommend to him a cartoon in the Australian newspaper this morning which suggested where his J curve is probably hurting him most.

What about foreign debt? I mentioned that one of the major elements of this disastrous current account figure is foreign debt. In June 1983, three months after the previous Government lost office, the foreign debt was about $36 billion. That was too high. It is now treble that in gross terms. Under this Government our foreign debt has trebled. That is the most appalling indictment of any government which claimed that it had everything under control, that it knew what it was doing and that even though it was out of step it was really the only one in step. Three years later the foreign debt has trebled. That debt is increasing by something like $1,000 every second. We now need something like $6,000 from every man, woman and child to pay off our foreign debt. It is this rapid rise in our foreign debt and the fact that this Government in particular has led the fray in borrowing-its borrowings have led to some really significant rises in borrowing in recent times-that led to Paul Keating being the first Treasurer in Australia's history to preside over the downgrading of Australia in international markets from AAA to AA. He was the first Treasurer to preside over such a disaster.

What about interest rates? Let us consider another of these broken promises on interest rates. In an address to a business lunch in Adelaide on 20 November 1984-it is curious how all these cheerful comments seem to have come just before an election-Bob Hawke said this:

At present, the outlook for interest rates is as bright as it has been for more than a decade. Australia and Australians will during 1985 reap the interest rate rewards that are flowing from successful policies of the past 20 months. We have ploughed the fields and sown the seeds. In the near future we will harvest the crop.

I can tell honourable senators that there is plenty of fertiliser there to help it. That is the most arrant fertiliser I have seen for a long time. Here we have a Prime Minister promising something like that on interest rates, having been once bitten already. What has happened since then? Savings bank home loans have gone up from 11.5 per cent to 15.5 per cent. Certainly, Australians seeking to buy homes know how misleading, disgraceful and irresponsible this kind of ratbaggery by the Prime Minister has been. How disgraceful such a promise before an election has turned out to be. We have seen the prime rate go from 13.5 per cent to 18.25 per cent. We have seen the small overdraft rate, which affects most ordinary Australians, go from 14.5 per cent to 20.5 per cent, and 90-day bank bills from 11.5 per cent to 16.8 per cent. In effect, these are increases of up to 50 per cent in the cost of borrowing money under a government led by a Prime Minister who was re-elected on the promise that the outlook for interest rates was just great.

This kind of deception is arrant nonsense. There can be no reduction in interest rates until this Government resolves the current account and foreign exchange problems that its own policies have created. We must keep our interest rates high in order to keep attracting foreign money to pay for our external bills, many of which were originally generated by this Government's excessive spending, by its reckless indifference to economic reality, by its sticking to the nonsensical policies outlined in this booklet on the accord. I intend to stop now because I would very much like Senator Hill to have the opportunity to say a few words about this disastrous situation.

I simply conclude by saying that the Hawke Government has dishonoured almost every promise on the economy it has made to the Australian people. It has dishonoured its promise on inflation, we have seen that; on interest rates, on the 13 1/2 per cent interest rate ceiling. By the way, I wonder what the Government will do about the housing interest rate subsidy which is due for renegotiation at the end of next month. If it does not continue that subsidy there will be an even worse disaster in the housing industry than that which has already occurred and, if it does maintain it, there will be an added burden on the deficit, which will also be disastrous.

The Government has broken its promise on petrol prices and on the trilogy. What trilogy? It has been broken so often that it is honoured more in the breach than in the observance. I instance promises concerning the value of the Australian dollar, the capital gains tax, simpler tax laws, the delaying of tax cuts, interest withholding tax, 10,000 Priority One traineeships, housing, the balance of payments, the Button car plan and how devaluation was going to create 100,000 new jobs. These are basic promises which were broken, every one of them, by a government which varies between incompetence in the area of economics and the deliberate misleading of the Australian people about the causes of the present and worsening disaster in the economy. This, quite properly, has encouraged the Opposition to move this motion condemning the Hawke Labor Government for its mismanagement of the Australian economy.