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Thursday, 9 June 1994
Page: 1579

Senator SHORT (11.08 a.m.) —The Appropriation (Parliamentary Departments) Bill 1994-95, the Appropriation Bill (No. 1) 1994-95 and the Appropriation Bill (No. 2) 1994-95 are in essence what are commonly known as the budget bills. The bills give effect to the expenditure announced in the budget. Of course, not all government spending is contained in these bills. Indeed, expenditure of only $34.9 billion, or 28.3 per cent of the total of $123 billion announced in the budget, is authorised by these bills. The remaining expenditure is authorised by specific purpose legislation.

  We are debating these bills for the first time ever at this time of the year. Traditionally, the budget has been introduced in the third week in August, so this debate has normally taken place in September, October or even November of the financial year to which the bills relate. These appropriations are for the year commencing 1 July next. In that sense they break new ground and have produced some interesting experimentation on the government's part and some requirements for change by the parliament in the handling of the bills.

  That leads me to the first substantial point I want to make—that is, the fact that it seems to be the unanimous view of the Senate estimates committees that traditionally consider the appropriations of government departments as part of the budget process that this year the documentation with which we had to work was quite inadequate. We find that in the reports to the Senate of virtually all of the six Senate estimates committees. The main criticisms were that the information was inadequate, that it was difficult to follow, and that there was a lack of information on ongoing programs, et cetera, which were not subject to specific new budget initiatives.

  Certainly, those views were unanimously held by coalition senators, and I think the great majority of government senators would have had a similar view. Many coalition senators have expressed the wish to go back to the sort of material we have had in recent years in the program performance statements rather than the much truncated material contained in the documentation for this year's estimates—the portfolio budget measures statements.

  The committee of which I am a member, Estimates Committee D, in considering the estimates for the Department of Finance, raised the issue of documentation with senior officials of the Department of Finance. The report of Estimates Committee D records that the department is looking at ways to improve the situation. Certainly, I would agree that that ought to be the case. Indeed, Estimates Committee D made certain specific suggestions about the information to be included in future documentation. I think this is something the Senate needs to look at very carefully. I believe we ought to be holding discussions at an early date with the Department of Finance on our experience with the new documentation and that the Senate ought to insist on changes along the lines contained in paragraph 12 of the report of Estimates Committee D, together with any further suggestions from senators.

  The coalition would also recommend that the Senate formally move that these suggestions be incorporated in the material to be provided for additional estimates later this year, as well as for next year's budget estimates. They are matters which we will be pursuing at a later date. I will not say more about it at this stage, other than that, with the best will in the world on the part of all senators in trying to make the Senate estimates procedures work this time, we did have great difficulty because of the documentation.

  Turning to the budget itself and the budget parameters, what we see in the 1994-95 budget is a further very large increase in government spending. A further $6.1 billion will be spent by the government this year, coupled with a huge increase in taxes and charges. The increased revenue this year into the government's coffers will be no less than $8.1 billion. That is an increase of almost eight per cent this year. Some of the individual items are much higher than that. The personal income tax take, in particular, is going to increase this year by 8.2 per cent. Some of the other items are even higher in terms of increases, and that is just for the year ahead. What the budget papers also show is that there will be a cumulative increase of a further $26 billion in tax take over the following three years, even allowing for no additional expenditure proposals by the government—of course, there will be additional expenditure proposals—and even allowing for the fact that those figures are based on the government's highly conservative inflation forecasts.

  What we have is a big spending, big taxing budget. Despite the fact that we have had this huge increase in taxes, we are still going to have a quite excessive budget deficit this year of $11.7 billion. Indeed, if we adjust for one-offs, the real underlying deficit this year is not $11.7 billion, but closer to $18 billion. That has to be financed, as do maturing debts of the government. The government's financing task this year, the amount of money it is going to have to take out of financial markets to meet these huge deficits, is no less than $20.4 billion for 1994-95. That compares with $19.3 billion in the year we are just completing, and $20.3 billion in the year before that, in 1992-93. So when we look behind the rhetoric of the government's deficit reduction hype, we find quite the contrary—that with regard to the call on the financial markets to fund its huge deficits, that figure is not decreasing at all. Indeed, this year it will be the highest it has been for three years—and, indeed, earlier than that.

  The government is talking about an economic recovery. Indeed, the March quarter figures that came out last week, on the face of it, do show welcome signs of strong growth—an annual rate of five per cent GDP growth. But when one gets underneath the figures, one finds that the substantial underpinning of them is much less certain than that. There is a very worrying failure to increase on the part of business investment. Most of the growth we have had in the GDP figures has come from an increase in consumption, particularly from a very large increase in government consumption. They are not statistics on which sustainable economic recovery can be based.

  We have heard all of this hype about recovery before from this government. It has proven to be false every time in the past. We might remember in the 1988 budget the then Treasurer, now Prime Minister Keating, said that that budget `brought home the bacon'. He said in relation to the 1990 pre-recession budget that it was `the Rolls Royce of budget documents'. In the year before that, the pre-election 1989 budget was `a budget which puts the nation's interests first'. We have heard all of this time and time again. The government has cried wolf once too many times. I am absolutely certain that the Australian community is not going to be hoodwinked by the hype and the rhetoric that the government is pursuing at this time.

  If the government was so confident about economic recovery, that makes even more inexplicable the fact that it has once again gone for such a huge budget deficit. If it really believed there was strong underlying growth in the Australian economy, the one sensible thing it should have done was to significantly reduce the deficit below the $11.7 billion figure that it has come out with.

  It is very interesting to compare the recovery in the economy in recent quarters as measured by the statistics with the last recovery we had from the last major recession in

the early 1980s. I draw the Senate's attention to an excellent article on this by the noted economic commentator Terry McCrann in recent days. If we compare the last 11 quarters of economic growth with the corresponding 11 quarters of recovery from the recession of the early 1980s, we find some very stark differences. In particular, the fact is that this time we have barely recovered half the ground that we lost, compared with the recovery in the mid-1980s. Back then, growth had picked up more than 17 per cent in the first 11 quarters. This time, the figure is less than 10 per cent.

  As Mr McCrann points out, the pace of that growth was very different back then, when we were getting out of the recession of the early 1980s. As he said:

. . . we zoomed out of recession, with the economy growing nearly 9 per cent through the first year and a further 5 per cent through the year after.

In contrast, we limped out of this recession, growing less than 2 per cent through the first recovery year and just 4 per cent through the second.

The most striking point is the similarities and differences in the structure of that growth. In both cases—

that is, in both recession recovery periods—

housing has zoomed and consumption spending has picked up strongly . . .

He then makes this critically important point:

But it's been very different with business investment. In the mid-80s after 11 quarters investment was already running more than 27 per cent up on recession levels. This time it is actually 4 per cent below the trough level.

That is a very worrying statistic and it causes us great concern about the prospect of achieving the sustainable economic recovery that is so essential to this nation.

  The undeniable fact is that the 1994 budget has squandered a golden opportunity to address this nation's fundamental economic problems; it has squandered an opportunity that might not recur for many years. The three basic problems facing the Australian economy are: firstly, lack of investment, which is the keystone of sustainable economic growth; secondly, lack of national savings, and increased domestic savings are the only way we can reverse the course of the ever-growing foreign debt mountain with which this government has saddled us; and thirdly, our huge current account deficit and that foreign debt.

  There has been overwhelming concern expressed about the budget strategy by many distinguished commentators. The major concern is the magnitude of the deficit, which is far too high for current economic circumstances. As Don Mercer, the chief executive of the ANZ Bank, 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 added that Australia was `back on the path to boom and bust'. The distinguished firm of Salomon Bros, in its report on the budget, said that the government had taken a high risk strategy in the budget and that this would lead to a rise in interest rates sooner because of the failure to cut the deficit further. Westpac's recent economic analysis said:

The better strategy would have been to take advantage of the strong economic growth to wind back the deficit and ease the looming pressure for monetary policy to be tightened.

Potter Warburg the other day criticised the government's planned cuts to the deficit as `paltry' and predicted a `hefty' rise in interest rates later this year.

  A higher deficit means higher interest rates; higher interest rates mean lower investment, lower economic growth and lower employment. The government's own budget papers state that emphatically. That point has been made not only by the government's Treasury advisers—it is notable that they have—but also by others, including the Governor of the Reserve Bank.

  There have already been interest rate rises. Since January of this year, market interest rates have risen from a low point of 6.4 per cent to 8.6 per cent currently. That is slightly down on the high of 8.9 per cent of a couple of weeks ago. Interest rates have risen and, because of the failure to cut the deficit, there is no way they will fail to rise further in the months ahead. That runs the severe risk of choking off the recovery in business investment that is so essential.

  I turn now briefly to the question of debt. There are two major debt burdens afflicting Australia. The first is government debt, particularly Commonwealth government debt. The Commonwealth's debt has increased threefold in the last four years, from just over $30 billion in 1991 to over $95 billion forecast for 1995. This budget will add another $30 billion of debt during the period of the so-called deficit reduction strategy up to 1997-98.

  The second huge debt problem is our foreign debt, and that is the one on which most people, quite rightly, tend to focus. It has risen from $26 billion in 1983 to $210 billion or thereabouts at the present time. In a chilling comment in the budget papers, Treasury said:

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

Apart from the economic impact of such a debt, it is mortgaging the future of our children and grandchildren and creating an ever-increasing hurdle over which we have to jump. We are adding to our debt month by month and are therefore having to service an ever-increasing debt burden.

  We are fortunate that international interest rates have fallen in the last couple of years, otherwise the debt interest payment on that foreign debt would be even greater than the $18 billion it will be this year. Interest rates will go up over the next couple of years, and for that reason we will have a huge problem with our foreign debt situation.

  There are many other things I could say about this budget but time does not permit. In conclusion, I repeat that with this budget the government has totally squandered a rare and golden opportunity to get its books into proper order and to show the people of Australia that it is capable of professional national housekeeping. Once again it has failed hopelessly to do that.

  This budget will hold back the growth, the job creation, the new investment, the increased saving, and the improved competitiveness and efficiency that we so desperately need. Because the government has been unable to get its own house in order, interest rates will rise, savings and investment will be choked, the balance of payments situation will deteriorate still further, the foreign debt mountain will become even more mountainous and, as a result, the future of our children and grandchildren will be put further into hock. I foreshadow a second reading amendment to be moved by one of my colleagues.