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Thursday, 2 June 1994
Page: 1166

Senator SHORT (10.36 a.m.) —As my colleague Senator Watson, who lead the debate for the opposition, said, the Taxation Laws Amendment Bill (No.2), which we are now debating, is an omnibus tax bill which makes a number of changes to fringe benefits tax, capital gains tax, various income tax deductions and offshore banking units. Senator Watson has already outlined the coalition's concerns and positions on this bill. I do not propose to go into them in any detail.

  What Senator Watson has done in particular is highlight the absolute shambles of this government's approach to taxation formulation and taxation policies. We now have a situation—we have had it for some considerable time—where the whole of the tax area is highly complex. So far as the simplification that the government has talked about in recent years is concerned, all we have seen is increasing complexity and increasing paperwork. We now have something like 2,000 or 3,000 more pages of tax law than was the case when this government came to office. The costs in terms of paperwork and complexity to the business sector and to individuals are correspondingly great.

  We have uncertainty as a result of all of these constant changes. If we want to engender confidence in the economy and make investors, employers and employees get going again to produce a growing Australia, the last thing in the world we need is this continuing, damaging uncertainty. It is for that reason, amongst others, that the opposition will move the second reading amendment that has already been circulated condemning the government for its desperate pursuit of every last cent of revenue without regard to the costs that that imposes on industry and on all Australians; for unnecessarily adding further complexity to a tax system which it already has allowed to become excessively complex; for further extending and complicating the fringe benefits tax and capital gains tax regimes; and also—and this point has already been raised in the debate—for including higher education contributions debt in the provisional tax regime.

  I want to use my time this morning to speak more broadly on the failure of this government's taxation and economic policies. What we saw in the budget brought down just three or four weeks ago was the squandering of what was a golden opportunity to address this nation's two most fundamental economic constraints: firstly, the lack of investment in the economy and, secondly, what is the flip side of that to some extent—the lack of national savings.

  The great tragedy of this year's budget is that it did nothing to encourage or facilitate solutions to either of these things. On the contrary, the budget saw the end of the investment allowance on 30 June, it saw increases in corporate charges and it saw moves to curtail employee share ownership. All of those are quite the opposite of what is required.

  We are also in the middle of the staged tax rises in petrol excise and sales tax from last year's quite deceitful budget. That is one of the important reasons there is such a huge revenue increase in this year's budget. The government's coffers this year are going to be overflowing for a variety of reasons, the most important of which, arguably, is the full-year impact of the savage tax increases that were built into the 1993 budget.

  None of those policies will boost private savings or investment, nor will the huge increase in the cost of running government, compared with the earlier estimates that are enshrined in this year's budget. The administrative costs of the Commonwealth government this year, according to the budget papers, will be almost exactly $1,000 million—$1 billion—more than last year's forward estimates for 1994-95 envisaged.

  If there was one overwhelming concern with the government's budget strategy this year, it was with the magnitude of the budget deficit. It was far too high for the current economic circumstances. If the government wishes to claim, as it did yesterday with the release of the national account figures for the March quarter, that the economy is really booming along, the last thing we want is further added stimulus through the budget. But that is precisely what we have got.

  As a result, inevitably—sooner, rather than later—we are going to face savage interest rate increases on top of the already high level of real interest rates. I will come back to that in a moment. As I said at the outset, this is a squandering of a wonderful opportunity for the government to put its fiscal house in order. As Don Mercer, the Chief Executive of the ANZ Bank, so rightly said:

Failure to seize the opportunity of strong economic growth to cut the Budget deficit more rapidly is going to leave Australia with higher domestic and external debt than is necessary or desirable.

He said that Australia was `back on the path to boom and bust'. Sadly, that is a very accurate statement. The very highly reputable and respected financial house of Salomon Brothers, in a report on the budget last week, said:

The government has taken a high risk strategy in the Budget.

It went on to say that this would lead to a rise in interest rates sooner because of the failure to cut the deficit further. As I said a moment ago, real interest rates in Australia are already at near all-time highs. Certainly we have had a fall in nominal interest rates over the last couple of years—and a very welcome fall it is indeed—but, nevertheless, those falls in nominal interest rates have not been matched by a fall in real interest rates.

  It is real interest rates that count when looking at the impact of interest rates on the real economy; on whether people are going to invest and produce more, whether they are going to contribute to job creation and the like. It is real interest rates, not nominal interest rates, that count; and real interest rates in Australia are the highest in the Western world—and they are near record levels in this country.

  Why do all those things make such a difference? I have intimated some of the main reasons, but there are other fairly obvious points that need to be made in respect of them. The first one is that any debt today will have to be repaid tomorrow with higher taxes.

  In Australia today we have two massive debt problems. The one that attracts most attention is our foreign debt. We now owe the rest of the world $210 billion. Figures released just two days ago show that the interest payment that Australia will make on that foreign debt this year alone will be $18 billion. That is $18 billion of exports that we have to export simply to meet the interest payments on the debt that we have already stacked up. It does not allow 1c for any repayment of that debt. The way the economy is going at the moment with the continuing very heavy balance of payments deficits, we are adding to that foreign debt by at least an average of another $1 billion every month.

  So the mountain of debt on which we are paying interest increases month by month. International interest rates have fallen in the last couple of years, so the $18 billion interest payments that we are making would be much higher if interest rates internationally were higher. Those interest rates are on the move; they are starting to move upwards. So over the next couple of years we are going to be hit with a double whammy on our foreign debt interest payments—a higher debt to service and at higher rates of interest. That is one of the major debt problems that we face.

  The other major debt problem that we face, which the government has deliberately ignored and has squandered the opportunity to correct, is the amount by which the Commonwealth government's own debt has increased in the last few years. In the last five years the Commonwealth government's debt—its outstanding borrowings—have risen three-fold. The debt has risen from about $30 billion to something approaching $100 billion. That debt has to be serviced because interest is paid on it. Who pays the interest? The taxpayers of Australia pay the interest.

Senator O'Chee —That is on top of the debt they sloughed off onto the states.

Senator SHORT —As Senator O'Chee says, that ignores the additional debt that the government has imposed on the states by virtue of its Commonwealth-state financial relations. The effect of higher interest rates will, as I said earlier, be felt by lower investment, hence lower economic growth and lower employment. In waxing so eloquent and optimistic about the national accounts figures yesterday, the Prime Minister (Mr Keating) and the Treasurer (Mr Willis) very conveniently omitted to point out that in the March quarter private business investment in equipment, when we take out the one-off effect of a sale of the Gladstone Power Station from the public sector to the private sector—and that does not add anything to the total sum of investment—actually fell in the last quarter by 6.8 per cent.

  We cannot have a sustained economic recovery without investment. If we do not have the investment, we do not have a sustained economic recovery, then there is no way in the world that we are seriously going to tackle, on a long-term basis or even on a medium-term basis, the chronic, crippling, cruel unemployment situation in Australia where we still have not far short of a million Australians unemployed. The government's own budget papers emphatically make that point—and this is the government speaking through its Treasury:

Given present levels of excess capacity, economic growth can be maintained in the short term without substantial new investment in additional capacity. However, business investment will need to lift substantially as a proportion of GDP in order to achieve growth in the capital stock sufficient to sustain economic growth. While the forecasts point to a strong recovery in investment in 1994-95, further investment growth will be required in subsequent years to achieve the required growth in capital stock.

There the Treasury was quite clearly seeking to flag its concern with investment by including a major qualification in the budget about its forecasts. This is another very important quote:

The central feature of the economic outlook is the substantial pick-up in business investment. Forecasting business investment is, however, difficult since the timing of investment decisions is flexible and is heavily influenced by changes in sentiment. While an increase in business investment in 1994-95 is certainly in prospect, the strength and timing of the pick-up are less certain.

Even if we achieve the investment increase in percentage terms that the budget forecasts for 1994-95, and it is a highly questionable `if'—views as to whether we will get this 14 1/2 per cent increase in investment are mixed—there has to be continuing sustained investment beyond 1994-95 or we will simply be back on the boom-bust cycle that has so tragically wrecked not just the Australian economy over the last dozen years but, more importantly, has wrecked the livelihoods of millions and millions of Australians, particularly young Australians facing the future.

  If there is any one particular reason why investment will not pick up—and there are many reasons why it may not—it is the level of interest rates. This is one aspect over which the government itself can have considerable influence. Rising interest rates will stall any pick-up in investment that might otherwise have occurred. The Governor of the Reserve Bank, the Prime Minister and the Treasurer indeed are now issuing stern warnings that interest rates will rise. That is true. At least they are being honest about it. But they are not being honest in not telling the Australian community that the reason interest rates will rise sooner rather than later is that the government itself has not had the fortitude, the wit, the capacity or the ability to take the necessary measures in its budget to make less necessary than would otherwise be the case further rises in interest rates.

  They are some of the matters that are being swept under the carpet by the government and its spokesmen at the moment. Certainly the opposition does not want to sound like, nor does it propose to be, economic Jeremiahs. We welcome yesterday's national accounts figures that showed growth in the bottom line for the March quarter, but what we are profoundly concerned about is the underpinning of that in any substantial way. When we look at the make-up of that bottom line of impressive growth for the quarter, we very easily find grave concerns for the future: lack of investment and lack of saving.

  Household savings in the March quarter fell to the lowest level ever recorded. They fell to a rate of about just one-third of what they were as a proportion of household disposable income at the time that this government came to office back in 1983. Savings and investment are the essential underpinning of any sound sustainable economy. We do not have them in Australia today. Instead we are relying on a pumped-up consumption expenditure, very heavily government driven, that is not sustainable. It is essential that the government revisit its economic policies and, for once in its life, try to insert economic responsibility into its fiscal policy that is essential for the future of this country and its people. I move:

  At end of motion, add: ", but the Senate condemns the Government for:

  (a)its desperate pursuit of every last cent of revenue, without regard to the costs that this imposes on industry and on all Australians;

  (b)unnecessarily adding further complexity to a tax system which it already has allowed to become excessively complex; and

  (c)further extending and complicating the fringe benefits tax and capital gains tax regimes, and for including Higher Education Contribution debt in the provisional tax regime".