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Thursday, 9 June 1994
Page: 1586

Senator McGAURAN (11.48 a.m.) —Today I am also addressing the appropriation bills. I wish to specifically contain my remarks to the government's recently delivered 1994-95 budget, somewhat in a technical sense, as did Senator Short.

  The expectations in the marketplace and media leading up to this budget laid the groundwork for the reactions which followed the budget. Summarily, there is disappointment in its efforts to tackle the real problems now a decade old, and there is a rejection of its estimates and projections of its likely outcomes. The only accolade given to this budget was the fact that it did not have any new, up-front, seen taxes, probably because the last Dawkins budget had enough taxes in it for the next two budgets. We are still paying for the last Dawkins budget, with tax increases yet to come in August—the final phase of the fuel taxes.

  In the lead-up to this budget Australian business leaders issued a very stern and clear message to reduce the budget deficit. The Business Council of Australia in its budget submission urged the government:

. . . to aim at nurturing and sustaining non inflationary economic growth without losing gains in economic competitiveness.

The council called for a budget deficit around $8 billion, which is down from the government's estimated $13.6 billion in 1993-94. The National Farmers Federation, in its budget submission, had a similar view regarding the budget deficit reduction. It said:

It is important that the faster recovery not be allowed to run up against the usual constraints of rising inflation, interest rates and the current account deficit.

The National Farmers Federation called for a budget deficit of around two per cent of gross domestic product in 1994 to keep pressure off interest rates, which translates into a dollar figure similar to that given by the Business Council of Australia.

  Moreover, in the run-up to this budget, the bond market indicated that the government should bring in an acceptable budget deficit or face the consequences of rising interest rates. In full knowledge of the government's usual fiscal form and monetary responsibility, the bond market, a week or so prior to the budget, factored in higher yields of some three per cent. So the overriding trend emerging from the bond market, the Business Council of Australia and the National Farmers Federation was the need to reduce the budget deficit or face the detrimental effects of hikes in interest rates and the consequential snuffing out of any possible recovery.

  When the new Treasurer, Mr Willis, handed down his first budget, he followed the form of his predecessors. Should we have expected anything less? It lacked the courage to maintain reform in our economy and the discipline needed to sufficiently reduce government spending. So, in essence, the bond market was duly correct in its pre-budget estimation. While the budget deficit was announced at $11.7 billion, seemingly at the lower end of expectations, the pundits were not taken in. One such pundit, namely the Westpac Market Insights, says that the underlying deficit figure is $16.2 billion when taking into account asset sales—one-off figures. Yet one would have to wonder if even this is achievable considering this government's past difficulty with asset sales figures.

  In 1990-91, the amount received from asset sales was $838 million less than the budget forecast. In the following year, 1991-92, asset sales were $323 million less than the budget forecast. In 1992-93, asset sales were $799 million less than the budget forecast. In 1993-94, while figures are not finalised as yet, the figure is again expected to be below the budget forecast. The 1994-95 asset sales are primarily dependent upon airport sales, even in the light of the fact that it will take some 18 months to prepare these airport sales—a la the sale of Qantas. It must be remembered that these sales are yet to be agreed upon by the union movement—and we see difficulty there already—and the Left wing of the Labor Party. It is a matter that must be settled at the ALP conference which I believe is being held in September at its usual venue, the Hobart Casino.

  Short of a rebellion by the executive government, the numbers seem to be going—are you going, Senator?

Senator Reynolds —There'll be more women.

Senator Collins —Does it matter?

Senator McGAURAN —I can tell those opposite which way the numbers are going. They had better get down there if they want this budget to meet its assets sales projections because the numbers are going against them. Senator Forshaw, who has not made his maiden speech yet, does not know where the conference is or when it will be. Well I can tell him that the numbers are going against the government with regard to these assets sales. Unless he and a few others go and support their Prime Minister there will be a rejection of the airport sales. The executive government will then have to go into an all-in-brawl with its own party. Wake up to yourself Senator Forshaw.

  The ACTING DEPUTY PRESIDENT (Senator Zakharov)—Order! I remind you to address your remarks through the chair.

Senator McGAURAN —The truth is the reaction to the budget ranged from cynicism to outright rejection of its forecast. Significantly, Mr Don Argus from the National Bank did not even believe the predicted 14.5 per cent increase in business investment was achievable. Even the Treasurer raised doubts. Within days of the budget Mr Willis was nonchalantly reported in the Canberra Times as saying that `no-one can say that they can be adamant that this is going to happen'—a rare moment of truth from probably one of the most honest treasurers we have had in this Labor government.

  To put the budget estimate on business investment into perspective, this amounts to an increase of around $5 billion from the previous year, which is equivalent to the investment rates of the so-called booming 1980s, which we would all be aware led to a high interest decade and, ultimately, to recession—the boom-bust cycle which we in this country so desperately wish to avoid but have been warned about by leading business figures such as the ANZ Bank chief. To date, business investment shows no sign of a sustained increase, rather it is maintaining its downward trend. According to the Australian Bureau of Statistics, new investment spending by private industry fell by five per cent during the March quarter.

  Regardless of the recently heralded surveys indicating optimism for business investment among some of the top 100 or so chief executives of this country, several points need to be kept in mind about these heralded surveys. The surveys were taken among the large institutional investors who do not distinguish between their investment in Australia and their investment overseas. This is significant as there has been a rather large surge of Australian companies investing overseas of late. Moreover, those sectors not included in the surveys were the very sectors that will bring the real and sustained surge in business investment, namely the small business and farming sectors. Any decent survey would surely have included these sectors, and would have found that their optimism did not match that of the major chief executives of this country.

  The National Farmers Federation has recently stated that the economy would only grow at 4.5 per cent for the next five years with significant input from the rural sector. It cannot be done without the rural sector. The National Farmers Federation claimed that the government's forecast of 14.5 per cent business investment growth next year was too high, especially when micro-economic reform had slowed. The most credible and significant survey of all is the movement of the stock market which, in the last week, shows falls outmatching rises due to expected weaker commodity prices and worse than expected retail figures.

  The figures show that retail turnover slumped nationally by some four per cent during April. So, at best, expectations for future investment growth should be cautious, and certainly the high forecasts in the budget should be rejected outright as they are simply not believed. The difference between what will be a surge in investment and a bleep in investment will depend on the extent to which interest rates rise—or even the expectations for rising interest rates—over the next 12 months. The truth is that farmers and small business are highly reluctant to invest in plant and equipment due to the fear of rising interest rates.

  It is incumbent upon the government to understand the profile of small business and fathom the constraints upon small business, and to implement policies accordingly. The small business survivors of the recession are working on historically low margins, and they are making profits more from the slashing of overheads than from the volume of trade. Moreover, they are working on overdraft interest rates, not in the range of the published rate of around 9.5 per cent or housing rates of around 8 per cent, but of double digit figures around the 12 per cent mark. Those are the interest rates that small business is facing today.

  An interest rate rise of greater than 1.5 per cent would simply snuff out any chance of a small business-led recovery. The point is that some 900,000 unemployed in this country, of which 300,000 are long-term unemployed, are waiting in the unemployment queues until small business does recover. It is recognised that small business is the very engine room of employment and offers the best opportunity for economic growth in this country. While big business sheds staff at the rate of thousands, it is small business that is increasing its staff levels.

  It is significant to mention that just one week before this budget was brought down, the government announced its white paper on unemployment. As a document of compacts, training schemes and training allowances, it may have some merit—at a cost of $6.5 billion over the next five years, it would have to have some merit—but as an answer to the unacceptable decade of high unemployment, it quite simply fails.

  In its Working Nation paper, the government concedes failure when it accepts its inability to reduce permanent unemployment below five per cent by the year 2000. Yet this abandonment of so many Australians need not be accepted at all. Rather, we should be attempting to achieve a figure around the two per cent mark. To meet the hopes and aspirations of so many unemployed Australians, governments need to turn their efforts to setting in place fiscal and monetary policies that drive up business expectations and stimulate private sector investment. This is the answer to the unemployment yoke that so many members of the government wear. This budget should have put into place the very foundation for a sustainable recovery.

  Firstly, business requires the removal of the impediments to work, particularly in the labour markets, yet the present industrial relations so-called reform bill has resulted in the boycott of employment. Some 700 to 800 cases were lodged in the first eight weeks of the operation of the unfair dismissal laws. I am certain there will be many choice quotes in Hansard from this side of the house warning the government of that very fact. Now the government has gone into damage mode. While we have not seen the changes to the unfair dismissal laws, I am sure they will not be adequate and will not go far enough.

  Secondly, there needs to be a simplification of tax laws, such as the Rubik's cube definition of the fringe benefits tax. The impost of the government's capital gains tax is a further deterrent to long-term investment by business in this country and, moreover, it has its worst effect upon small business.

  Thirdly, a low inflation, low interest rate environment needs to be sustained. To this end, governments need to run more efficiently, trimming their running costs and, importantly, reducing their deficits. If the banks did not have government securities in which to put their customers' deposits, they would have an even greater loanable surplus. Equally, to maintain long-term competitive interest rates, Australia needs to reduce its dependency upon foreign borrowings and make a start towards reducing our foreign debt.

  The growing gap between investment and savings is the root cause of our balance of payments and debt problems and remains the most serious impediment we face in lifting the speed limits on Australia's economic growth. In conclusion, the potential is enormous and, sad to say, the prospects under this government are not.