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Wednesday, 1 June 1994
Page: 1065

Senator SHORT —My question is addressed to the Leader of the Government in the Senate. I refer to the document being prepared by his government's propaganda machine to educate the public about Australia's foreign debt crisis, following Mr Keating's reported claim to caucus that foreign debt was not `bad'. I ask Senator Evans: is the Prime Minister now seriously telling the Australian people that the massive blow-out in net foreign debt from $23 billion to $169 billion, and to a gross $210 billion under Labor, is not bad for the Australian economy? Is the government seriously telling us that the $18 billion in annual interest payments on this debt is not bad or was Treasury wrong when it gave a chilling warning in its own budget papers? It stated:

the build up of external debt during the 1980's has almost certainly imposed costs on the economy, including through increased interest rates and greater vulnerability to external shocks.

Senator GARETH EVANS —The first point to make, as the Prime Minister did, is that the build-up in foreign debt as a result of ongoing current account deficits—and there obviously has been such a build-up over the last decade—is not necessarily an undesirable development, so long as the deficits are geared towards exploiting investment opportunities which are capable of generating sufficient returns to cover servicing costs. I repeat the point: it is not necessarily an undesirable development, so long as the deficits are geared towards exploiting investment opportunities which are capable of generating sufficient returns to cover servicing costs—and they are. Let us look at the content of Australia's foreign debt at the moment. Around 61 per cent of it is owed by private sector borrowers; and it is they, rather than the community as a whole, that accept the risk—

Senator Campbell —So it's all their fault, is it?

Senator GARETH EVANS —If the senator listens, he might learn something. It is the private sector, rather than the community as a whole, that accepts the risks associated with its financial obligations. The remainder of that amount is accounted for by state governments with 25 per cent; and 14 per cent is accounted for by public trading enterprises. The Commonwealth government is a net lender. In terms of the crucial issue of capacity to service this debt—if those opposite will listen long enough to understand the point in issue—the situation is that servicing costs, as a proportion of total exports, have fallen from 21 per cent at the end of June 1990 to right on 11.3 per cent at the end of December 1993. That reflects not only a decline in world interest rates but continued strong growth in exports.

  The debt service ratio, as it exists at the moment—the international method for determining the capacity to handle any given level of foreign debt—of 11.3 per cent is the lowest it has been for a decade. The usual measure of a difficult, dangerous debt service ratio is when it starts to get up above 20 per cent. Our debt service ratio, the percentage of our exports that we need to service that debt, is down to 11.3 per cent at the moment, the lowest it has been for a decade and very low in any comparable international terms.

  The second point to make is that the government does recognise the constraints that are imposed by increasing levels of foreign debt and the importance over the medium term of reducing Australia's current account deficit and stabilising the external debts as a proportion of GDP. We have, of course, initiated policies aimed at reducing the imbalance between national savings and national investment in order to reduce that reliance on foreign savings.

  In particular, of course, we are committed to the medium-term deficit reduction strategy to reduce that deficit to around one per cent of GDP by 1996-97. We have made substantial progress in that respect in this year's budget. We will continue to do so, and we will meet that particular target.

  The superannuation guarantee is also designed to help raise private sector saving over time—something that those opposite have rejected, will not be a part of. How else they are going to improve the savings ratio I do not know because they have made no rational, helpful or sensible contribution to that debate. Of course, we have the situation of micro-economic reform measures being necessary to increase the efficiency with which capital is used also reducing our national investment needs over time, and we are continuing with a very solid and substantial micro-economic reform agenda.

  That is the story, Mr President. I do not need any education, the government does not need any education, from the layabouts on the other side of this chamber. They have no rational contribution to make to economic policy; they have no basis at all for any criticism they make of that existing level of debt. The explanation for it is clear, what we are doing about it is clear, and we can certainly handle it with the present level of our exports.

Senator SHORT —Mr President, I ask a supplementary question after that incredible answer. Is Senator Evans suggesting that somehow or another private debt is good and public debt is bad, which is a ridiculous proposition? Even if he were arguing it, is he aware that almost $100 billion of our foreign debt is public sector debt? Will the government's foreign debt propaganda document also educate the Australian public about the increasing likelihood of the re-emergence of the boom-bust cycle, coupled with rising interest rates and higher unemployment? Will this document also address Mr Keating's responsibility for the emergence in Australia of a permanent underclass and the redistribution of wealth upwards? In other words, is this document going to tell even half the truth?

Senator GARETH EVANS —It is not the case that there is any difference as between public and private sector debt, other than this: when we are talking about private sector debt we are talking about the private sector rather than the community as a whole accepting the risks that are associated with that particular debt. That is all that that means. It is not a matter that impacts upon the Australian community as taxpayers because it is not the community as taxpayers that has to handle that burden.

  The other point I make is that when we talk about the level of public sector debt it is important to appreciate that the Commonwealth is a net lender. The states have 25 per cent of that debt, the trading enterprises have 14 per cent, and the Commonwealth government as the Commonwealth government—that for which we are responsible as policy makers—is a net lender.

  As to the content of the paper, what it is aimed to do is to increase the literacy of the public debate on this issue of foreign debt, starting with those opposite. I know that that is a labour of Hercules, I know that that is a target we can never achieve, but being the decent mob we are we are going to try. (Time expired)