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Wednesday, 22 June 1994
Page: 1865


Senator HILL —My question is directed to the Minister representing the Prime Minister. In light of the continuing silence by the Treasurer and his refusal to comment yesterday on the turmoil in financial markets, will the minister confirm the report in this morning's Australian Financial Review of concerns within the Reserve Bank that the high long-term bond rates will adversely impact on new investments? If so, how will this change the forecast of new business investment that underpinned the entire budget and deficit reduction strategy? Will this strategy now be reviewed and the Australian people presented with a more honest assessment of our economic prospects for the next 12 months?


Senator GARETH EVANS —Whatever new way in which the question is put, there is no more virtue in this issue being raised today by the opposition than there has been all week. It is an attempt to beat up a story which has quite enough life of its own and does not need any help from the opposition. Of course it is the case that both the government and the Reserve Bank continue to monitor developments in both the domestic economy and the world bond market and of course it is the case that they will continue to take both sets of developments into account in setting monetary policy. Of course, moreover, it is also the case that the government will continue to set monetary policy in a way that is designed to ensure both low inflation and low inflationary expectations.

  So far as the domestic economy is concerned, the position remains exactly as I have stated all week and there is absolutely nothing more to add as to the substance of it—namely, that the fundamentals of the Australian economy are absolutely sound and, in particular, there is no sign whatsoever of any pick-up in inflationary pressures in the Australian economy.  The chief economist of Bankers Trust, Dr Chris Caton, was very widely quoted this morning—and so he should have been—as saying that there was no logic in bond rates being any higher now than they were a year ago. If there is any skittishness in the Australian bond market at the moment, it is obviously as a result of developments elsewhere—developments not in Australia but in the world at large and world inflationary expectations, not ours.

  There is certainly no ground to suggest, as some opposition spokesmen and commentators have been saying, with no sense at all, that these developments are the result of a failure of fiscal responsibility by the government in this year's budget. The government's deficit reduction strategy is universally regarded as absolutely responsible; indeed, one of the tightest in the OECD. Our deficit will be coming in at less than one per cent of GDP while the figure for the United States will be 2.3 per cent, Canada three per cent, France 2 1/2 per cent, and the UK around two per cent. On top of that, Australia has one of the lowest ratios of outlays to GDP in the OECD.

  I think it finally ought to be acknowledged for those opposition spokesmen who are saying that this is all the fault of a deficit reduction strategy that is not tight enough or disciplined enough, that the opposition itself has absolutely no credibility on this matter. When Dr Hewson was in his death throes, he and his supporters were throwing around hundreds of millions of dollars, indeed billions of dollars, worth of promises in areas like Aboriginal health and regional infrastructure while, at the same time, opposing tax rises.


Senator Kemp —Mr Deputy President, I raise a point of order on the issue of relevance. The question was very specific and related to the government's policies, or the failure of the government's policies. It has nothing to do with any views that Senator Evans may have about the opposition's policies. Senator Evans is in government and the government is responsible for the budget settings. Could you insist on relevance to the question? The question was quite specific. Senator Evans should be asked to address the question and, if he does not, he should be sat down.


Senator GARETH EVANS —On the point of order: if we are talking about investment—as the questioner was—if we are talking about the interest rates which underlie investment, if we are talking about the inflationary situation and inflationary expectations which, in turn, underlie interest rates, it is perfectly appropriate to draw attention to the credibility of the questioners on the very matters at issue, and that is what I am seeking to do.


The DEPUTY PRESIDENT —Order! There is no point of order. Provided Senator Evans is not discussing opposition policy, there is no point of order.


Senator GARETH EVANS —I am drawing attention to the fact that there is no credibility in questioners, who talk in terms of outlays or the fiscal situation, advancing these lines when they have a leader who wants to remove indirect taxes, which cascade onto exporters, on his own estimate, at an annual cost of at least $2 billion; when they have a leader and a shadow Treasurer who both want to give the wealthy and the business sector other revenue relief—


Senator Campbell —Mr Deputy President, I raise a point of order. The Leader of the Government in the Senate has now flouted your ruling. You specifically said he should not canvass opposition policy, and that is exactly what he is doing.


The DEPUTY PRESIDENT —Order! Senator Evans, you are beginning to trespass into opposition policy.


Senator GARETH EVANS —Very well, Mr Deputy President. What I will do is talk in terms of suggestions coming from the opposition as to an appropriate fiscal strategy which we will not adopt. We will not adopt Mr Downer's suggestions about removing indirect taxes cascading onto exporters. We will not adopt Mr Downer's and Mr Costello's suggestions about a CGT and FBT reduction at a cost of hundreds of millions of dollars to the taxpayer. We will not adopt Mr Downer's proposal about tax incentives for savings, about which he has offered no information and which manifestly we cannot afford. We will not adopt Mrs Bishop's proposal to provide tax concessions for private health insurance at an annual cost of $1.5 billion, probably closer to $3 billion. We will not adopt what Mr Abbott and Senator Minchin have been saying about income splitting, at a cost of close to $7.5 billion. We will not adopt what Mr Peacock has been saying about aid, at an average cost of about $44 million a year. We will not adopt what Mr Reith is saying on defence, or any of the other irresponsible rubbish coming from the other side on fiscal policy.


Senator HILL —Mr Deputy President, I ask a supplementary question. The minister obviously sought to avoid the question asked. It is an important question which concerns the apparent conflict between the views of the Reserve Bank and the government's Treasury. The Reserve Bank is reported to have said that with long-term bond rates now touching 10 per cent, there is concern in the bank that this is lifting the level of return that business has to generate to justify new investment. Therefore, the bank is expressing concern that investment figures will be down—investment figures which were absolutely critical to the government's total budget strategy. Is the minister disagreeing with the Reserve Bank's assessment? If he is not agreeing with it, when will he face the fact that the government's budget strategy is failing? Therefore, when will he review that strategy?


Senator GARETH EVANS —I said, and I repeat, that the government and the Reserve Bank together will continue to monitor the present situation in a way that has regard to both the domestic economy and the world bond market. We will continue to set monetary policy in a way that is designed to ensure both low inflation and low inflationary expectations. Beyond that, I have absolutely nothing further to say.

  Of course, we are conscious of the currents that are flowing in the economy at the moment. Of course, we are conscious of the trends that are flowing internationally at the moment. Of course, we will continue to monitor those trends. Of course, we will set monetary policy in a way that is designed—I repeat again—to ensure both low inflation and low inflationary expectations.

  Unless that is done, investment predictions and investment expectations—which are contingent upon interest rate settings which are, in turn, contingent upon those inflationary expectations and realities—are thrown off course. We on this side are not fools. We have been managing the economy with very great responsibility, flair and distinction in an environment where the contrast is one of absolute irresponsibility.