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Wednesday, 24 August 1994
Page: 248

Senator SHORT (4.41 p.m.) —by leave—I move:

  That the Senate take note of the document.

The Reserve Bank annual report is once again an interesting document. It is one of the key economic documents to be released each year by the official organs of government. The Reserve Bank is the key financial institution in Australia and is the central bank.

  The report contains a number of interesting matters that I wish to touch on briefly today. It runs through the normal matters including its view of the economy and economic policy, and developments in the recent past; it looks at the future economy; it also deals with normal financial markets, financial intermediation and financial system surveillance as well as its own operating results.

  It is interesting to note that the first page of the document contains a list of the 15 interest rate cuts that were required by the government in an attempt to stimulate the Australian economy out of its prolonged recession that the government's own economic mismanagement engineered in the late 1980s and which the government and the then Treasurer, Mr Keating, acknowledged as the recession we had to have, which was absolute nonsense. The only reason we had to have the long, deep, prolonged recession that we had was the fact that the government had displayed monumental incompetence in its fiscal and monetary policy management and its economic management as a whole.

  Since this report was signed off by the Chairman of the Reserve Bank Board, the Governor of the bank, Mr Fraser, in his signing off letter to the Treasurer on 5 August, we have had a reversal of that interest rate reduction trend. We saw a three-quarters of a per cent increase in the official rate last week. I wonder whether next year's report will open by listing the rises that will occur over that period as well as having taken the credit for the reductions that have occurred in recent years. It is some time now since there was an interest rate reduction, the last one being on 30 July 1993.

  The trend has now started to reverse. The government has acknowledged that there is no doubt that interest rates are on the way up. We have seen the start of it with the Reserve Bank decision of the three-quarters of one per cent rate increase last week. There is no doubt at all that so long as the government continues on its path of fiscal policy ineptitude and excesses it is inevitable that we will see a continuing spiral in interest rates. The timing of the release of the report is ironic in the context of last week's first interest rate rise in four years, no doubt the first of many in the tightening of monetary policy under this Labor government. As my colleague Senator O'Chee has pointed out, it was a pretty hefty rise at that. Three-quarters of one per cent is a hefty rise in anyone's language.

  The report contains a dissertation on the domestic and international economy. It toes the government's line very closely on those matters. Which organisation is leading which is another matter—whether the government is following the Reserve Bank line or the Reserve Bank is following the government line—but there is no doubt that the two are running very closely together in their comments and analysis of the economy.

  The report contains what I would regard as some fanciful hopes in the present climate of a major pick-up in investment expenditure. It admits that investment has failed to improve under this government's policies and that investment now is at disastrously low levels without any clear indication at all that we will see any pick-up let alone any sustained pick-up in the investment expenditure in this country. The bank says in its report that it hopes there will be a pick-up, but hope is a fairly weak reed to fly with in an economic situation such as we have today, particularly in a rising interest rate climate.

  The report devotes a section to housing in an attempt to justify what must have been known when this report was produced—that there was soon going to be an increase in interest rates. Again it runs the government line on housing borrowing that, despite there being no boom in housing prices, there is too much housing activity. It seems to have ignored the most recent figures for residential housing activity which has shown a fall.

  I draw the Senate's attention to a very interesting graph on page 8 of the report which shows housing affordability over the 20 years since 1975-76. Despite the government's current propaganda that housing affordability is now at its best for 20 years or more, the Reserve Bank graph shows quite clearly that that is not the case. Even though the affordability ratio has improved in the last

year or so, it is still nowhere near the levels attained throughout the period of the previous Fraser Liberal/National Party government.

  Housing affordability is currently only just above the level it was when Labor came to office in 1983. In other words, housing affordability is now slightly less good than it was in 1993 and, as I have said, less so than throughout the entire period of the Fraser government.

  The report makes considerable note, understandably, of the commendable fall in inflation in Australia. The question of whether we have broken the inflation stick permanently, that inflation legacy that Australia inherited from the Whitlam period, is a much more open question.

  What is particularly telling about the achievement of low inflation in Australia in the last few years is the immense cost that we have borne to attain this. It is interesting that the report does reveal the rarely admitted real GDP per capita figures for Australia's economic growth. Normally, we just see figures for GDP growth in a period without relating them to the movements in population. Of course, the GDP per capita figures much more accurately reflect living standards than the government's preferred real GDP figure which, as I say, takes no account of Australia's relatively high population growth.

  When one does take account of that population growth, the Reserve Bank statistics show that the gross domestic product in Australia did not rise on a per capita basis from the late 1980s right through until 1992. Over that same period, allowing for lags, unemployment rose from just under seven per cent to a record figure of more than 11 per cent. Of course, we all know the tragedy—the fact that more than one million Australians were unemployed at a number of times during this period. Indeed, today, we still have the tragedy of almost 900,000 Australians unable to find work and at least an equal number unable to find the type or hours of work that they want.

  The final point I want to raise is the question of fiscal policy and the budget deficit. The Reserve Bank, of course, is more concerned with monetary policy; that is its responsibility. But we cannot look at monetary policy without linking it with consideration of fiscal policy. The two go hand in hand. The bank report makes only a brief mention of the budgetary situation and, in particular, the ongoing excessive budget deficit problem. On page 17 of the report it says:

Achieving—and hopefully doing better than—this planned reduction in the deficit—

planned by the government—

will have an important bearing on the level and composition of growth in the years ahead.

That is an understatement, to say the least. The simple fact is that this government has been quite unable to develop a budgetary policy, a fiscal policy, which has permitted a sufficiently rapid run-down in the huge budget deficits that it has accumulated over many years. For the government to say that the best it can do is hopefully to get the budget into balance by about 1996-97 or 1997-98 is absolutely unsatisfactory and is far too lax a fiscal policy. That has huge implications for monetary policy, interest rate policy; therefore, for the level of investment and economic activity. The whole thing flows through together.

  Reducing the budget deficit much more rapidly than this government is budgeting for and forecasting must be a major priority. It should also be something which the Reserve Bank, if it is really serious about sustained low inflation growth, ought to be bringing forward and speaking loudly about day in and day out until action is taken. Until this does happen, recovery will always be tenuous at best. The sustainability of economic growth that is so essential for the future of this country will be out of our reach and desperately needed investment will simply not eventuate.

  In my view, the comments of the bank on this matter and the prospects for growth are shallow at the least because I believe they ignore some of the fundamental problems that the budget policy of this government leads to. It leads to increased pressure on interest rates. The government has a financing requirement this year in excess of $20 billion, a higher figure than last year. The prospects for the financing requirement over the next few years are also horrendously high. When we have a financing requirement of that nature, we are obviously putting pressure on interest rates in a way that the proper activities of a well-managed economy would not.

  We also have a continuing huge problem with our balance of payments situation. We have a current account deficit which year in, year out seems incapable of shrinking considerably on any sustainable basis. The current account deficit is now blowing out again and is forecast, even by the government itself, to blow out further. We all know that that is the cause of the enormous foreign debt problem that we have today. We have a foreign debt to the rest of the world that virtually exceeds that of any other country. For a country with our resources and potential, that is nothing short of disgraceful.

  But the more significant factor, rather than just the disgrace of it, is the enormous impact it has on economic activity in Australia and the enormous impact it has on reducing our sovereign independence. We have a government and a Prime Minister who run around saying, `We're not really independent because we're a constitutional monarchy rather than a republic; we're not independent because of the flag that we've got.' We hear all of this sort of nonsense. The real damage, the real danger and the real blow to the independence of this nation has been the economic policy of this government over many years, which has seen more than a seven-fold increase in our net foreign debt to the rest of the world in the 10 or 11 years that this government has been in power. When this government came to power in March 1983, Australia's total net foreign debt to the rest of the world was $23 billion. Today, it is well in excess of $170 billion—more than a seven-fold increase. Indebtedness of that nature and of that extent automatically and inevitably reduces our independence as a nation.

  It is regrettable that the Reserve Bank report did not pick up any of these issues and make some of these points, because they are the most important points that we need to consider in any future consideration of economic policy, economic policy development and the economic management of this country. If we do not get those things right, if we do not recognise and address those fundamental problems, we are going to continue to lose our sovereign independence. We are going to continue to hobble ourselves in terms of our capacity to provide jobs, because we can only get increased jobs if we have a policy which enables the nation to save, to invest and to produce.

  We are inhibiting ourselves right across the board in those fundamental areas. With regard to the whole question of competition policy, micro-economic reform has gone on the backburner. The government is saying that it cannot do any more economic reform, that it has gone as far as it can go. What absolute nonsense! It has not even started to scratch the surface of the micro-economic reform agenda that is required in this country.

  It is a great pity and an indictment, I believe, of the bank that its report does not pick up sufficiently on these matters. Indeed, many of them are not mentioned at all. I trust that it will do so next year because unless it does, it is not living up to its responsibility to inform the Australian public and the government on the real issues that have to be addressed if we are going to see, into the 21st century, the type of vibrant economic nation that we obviously so desperately need.

  Question resolved in the affirmative.