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Wednesday, 11 May 1994
Page: 622

Senator HILL —My question is directed to the Leader of the Government in the Senate.

  Senator Cook interjecting

Senator HILL —I am pleased that Senator Cook is here today. My question relates to the gambling theme of the year's budget, as has clearly been demonstrated in this morning's press—headlines such as `A gamble on growth', `Jobs gamble', `Labor gambles on business' and `Willis' hope and pray budget'. I ask the minister: in terms of such a clear demonstration of gambling, will he tell the Senate on what possible basis the government is entitled to predict a dramatic and continuing upturn in business investment when the Treasurer's own department concedes that `while an increase in business investment in 1994-95 is certainly in prospect, the strength and timing of the pick up is uncertain'? If Treasury is so lacking in confidence in the government, why then should business have a different view?

Senator GARETH EVANS —The reason we are entitled to be confident about the growth estimates that have been made in the budget, and the investment among other estimates that lie behind those growth estimates, is that growth estimates of that order of magnitude were achieved in spades from 1983 to 1990 in a much less favourable overall economic environment than exists now for business. The inflation rate was much higher, as we all know, through the 1980s than it is now. The micro-economic reform agenda had not moved as far or as fast as it has by now, with the implications of that for business costs. The business taxation environment was much less attractive than it is now, with company tax now running at 33 per cent as compared with the 42 per cent that the opposition is keen on imposing.

  By the end of the 1980s a great many balance sheet problems had accumulated in a number of companies, as we all know, which had inhibited the investment environment for many of them, even though they might otherwise have been wanting to engage in investment activity. Against that particular background, in an environment where the average through the 1980s was of the order of 4 1/2 per cent and where that figure was exceeded, as I recall, in at least four years, for us to be predicting growth now of 4 1/2 per cent in this coming year, 4 1/4 per cent the year after, and four per cent and four per cent after that, in an environment where we have 4 per cent now, putting us at the top of the OECD league table—and a much more favourable environment than that which existed in the 1980s—is not to gamble on growth; it is to make a rational and fairly conservative prediction about what that growth is going to be.

  Similarly with the amount of business investment that is required: the business investment environment, the climate for confidence so far as that investment is concerned, has never been better. The conjunction of economic fundamentals in this country has never been better. The levels of consumer confidence that would justify that kind of expenditure have not been better for many, many years. The sorts of figures we are talking about—14 1/2 per cent for next year—were in fact met easily on several occasions during the 1980s. They will be even more easily met this year because it is off such a low base as a result of the dwindling business investment that has occurred over the last four or five years, as we are all too acutely aware. There is no element of gamble about this particular budget. It is moderate, it is cautious, it is sensible and it is responsible. I can understand perfectly well why those opposite are so unhappy about it: it is a budget which leaves them with absolutely nothing to say.

Senator HILL —Mr President, I ask a supplementary question. I think the minister missed the question. I asked why the Department of the Treasury was so lacking in confidence in the government's predictions. Did it have something to do with the prediction of increased inflation, did it have something to do with our record foreign debt, did it have something to do with the fact that the balance of payments deficit is expected to increase, or did it have something to do with the fact that an opportunity to further reduce the deficit was missed?

Senator GARETH EVANS —The Treasury understanding of the situation about investment is essentially as I have described it. It knows perfectly well, and has said perfectly clearly in a number of documents, that the climate is there for reasonable expectations. The precise amount of the investment and precisely when it will start to flow in the order of magnitude that we anticipate are, of course, uncertain. We have been realistically expecting for some time that that particular investment surge would follow, and everyone who has been commenting on this right across the entire spectrum of analysis has been making the point that the conditions are favourable.

  No doubt people wanted to see what the outcome of this particular budget would be in terms of the extent to which we met our deficit reduction strategy targets. They no doubt wanted to see what we were going to do in terms of tax regimes and whether there would be new impositions on business or some other decisions making life a little bit more difficult for business. On the contrary, we have improved further the business taxation environment. We have created conditions where there are ample grounds for believing that the future will be as described in the Treasurer's budget.