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Thursday, 14 May 1998
Page: 2902

Senator LEES (8:01 PM) —I rise to present the response of the Australian Democrats to the 1998-99 Costello budget. In doing so, I propose to do three things. Firstly, I shall discuss the context for the budget, the policy settings and what passes for the rationale underpinning it. Secondly, I shall outline the Democrats' response in specific portfolio areas. Thirdly, I shall outline just how the Democrats propose to address the budget when the appropriation bills come into the Senate.

It is hard for me to remember a less inspiring, less stimulating budget than the one Peter Costello has just brought down. It was a singularly unimaginative document. Generally, its contents had been either leaked or announced well before the session. Virtually all the new spending initiatives were repackaged, reheated leftovers, even the size of the surplus was common knowledge to any taxi driver you would like to consult. They all knew it was somewhere between $2½ billion and $3 billion.

I searched long and hard for items of some significance in the budget, and I came to the conclusion that what was really significant about this budget was not so much what was in it but what was not in it. There is nothing in this budget to address Australia's unemployment rate, which is forecast to stay stuck at around eight per cent this year. There was nothing in it to address our ballooning current account deficit—for example, no strategies to improve our export performance. There was nothing in it to repair the damage done by $7 billion of spending cuts over the last two years. There was nothing in it to boost consumer and business confidence, which is critical to maintain local demand for goods and services as well as improve export performance in what we all acknowledge will be a difficult year ahead.

Simply, this is a budget with nothing much in it. This budget may well deliver a fiscal surplus, but it suffers from a chronic imagination deficit. This government is widely acknowledged to be ungenerous and mean, and this budget is an accurate reflection of the government. It has failed to address the social and economic pressures on ordinary Australians.

Let me remind senators of the mindless economic mantra chanted morning and night by those on the treasury benches, the mantra from which this budget has been drawn. Where there is a public service, privatise it or contract it out. Where there is an industry concession, they must be rorting. Where there are financial market commentators, we bow the head and kiss the feet. Where there is a government benefit, label the recipients as cheats and bludgers. Where there are people who cannot find a job, blame them. Where there are people who desperately need a public health system, ignore them and pour money into the private health insurance industry. Where there are people who cannot afford a decent education, ignore them and pour money into the private education system. Where there are people who do not kneel in homage at the foot of budgetary surpluses, mock them.

The much vaunted surplus, we are told, is a matter of greatness, a huge achievement. I am sorry to have to rain on Mr Costello's parade, but I cannot quite get excited about it, and neither can a lot of people, if letters in our national papers across the country are anything to go by. All the government has achieved is the replacement of a budget deficit with a gaping social deficit.

Let us not forget where the budget surplus came from. It was $1 billion hacked out of public health, $1 billion hacked out of industry and export programs, $1 billion hacked out of programs to help the jobless get back to work, $1 billion hacked out of Australia's education, training and research sectors, $1.6 billion hacked out of Australia's social welfare safety net and $1.5 billion in new taxes and charges that they like to keep very quiet about. These are the foundation stones on which this budget has been built. It has been the sick, the jobless, the aged, the students and those Australians on low incomes, including many small business people, and the young who have paid for these stones, who have paid for this surplus, and they are still paying.

In fact, the Melbourne Institute of Applied Science and Economic Research estimates that the government's program has left the average Australian family worse off by about $7 a week. This rises to a massive $38 a week if the breadwinner is unemployed. I cannot imagine that the people who have paid such a high price for the deficit reduction will be wanting to dance in the streets to celebrate Costello's surplus.

But, when you read the budget papers carefully, you soon discover that the budget black hole turned out to be $3 billion less than Treasury said it would be. It is now clear that $3 billion of the $7 billion of spending cuts were never necessary, and that the government could have achieved a balanced budget in 1998-99 without them—just read the budget papers.

In last year's budget, after the $7 billion of spending cuts, Treasury was forecasting a budget deficit in 1997-98 of around $3.9 billion and a surplus in 1998-99 of $1.6 billion. But in this year's budget papers, we find that the budget deficit for 1997-98, apart from new spending, came in $3.3 billion better and that in 1998-99 the surplus was going to be $3 billion better. The Democrats forecast this last September in our economic statement Restoring Confidence and again in my pre-budget submission released last week. We said then that there was an opportunity for government to do more to give the economy the confidence boost that it desperately needs and we say it again.

In my pre-budget submission Repairing the Damage I reiterated that the budget should give priority to the restoration of some of the cuts that should never have been made, such as the cuts to public health, to Australia's schools and to our tertiary education sector. I argued that the budget should help insulate Australia from the Asian meltdown by boosting domestic demand and business investment, particularly in the export sector and infrastructure.

The new Treasury forecasts vindicate completely what the Democrats have been saying. Both Treasury and the Reserve Bank are on the record now admitting that the spending cuts in the 1996 budget hit the economy much harder than they thought they would. It is now clear that if the cuts had been kept to a more modest level there would have been a lot more Australians in work now.

For the last five years the Democrats fiscal policy position has been constructed on three basic principles. Firstly, we recognise the need to improve the capacity for economic activity and to expand, to employ more Australians and to do this without driving up foreign debt or interest rates. Secondly, we recognise the need for this generation of Australians to meet is own commitments, at the same time ensuring that national savings and public sector assets are not squandered for future generations. Thirdly, we recognise the need to ensure that the benefits of economic activity are fairly and equitably shared and that the costs, especially the environmental costs, of economic activity are recognised and minimised.

Let me turn to history for a moment. Back in 1996, the Democrats recognised the need for deficit reduction. Importantly, however, we stressed the need to identify the causes of the budget deficit. And, however hard the Labor revisionists might like to try to rewrite history, the real reason that the budget deficit blew out was the rise in unemployment following Paul Keating's recession—the one that we had to have. What seems to have escaped the economic rationalists who framed this budget is that the best and surest way to reduce the deficit is to reduce unemployment. Every one per cent growth in employment saves the federal government $1½ billion.

The Democrats pointed to the findings by prominent economists Fred Argy, John Neville and Fred Gruen that half of the budget black hole was cyclical and that the budget cuts of only about $4 billion, which represented Labor's policy failures, were justified. The Democrats argued then that if cuts were deeper than that the economy would suffer, and on every point we were proven right. But the coalition argues that it has delivered lower interest rates. A nice line but they have only partly delivered that benefit. Let us just move on past the army of government spin doctors—no doubt up there again tonight—and get to the truth.

Of the estimated $220 billion of new debt created in Australia in the past two years only three per cent was incurred by the Commonwealth government. In fact, Australia has the second lowest level of public debt, second only to Korea, and the seventh lowest budget deficit of any industrialised country. It is not the public sector driving interest rates in this country. Interest rates are low because inflation is low and unemployment is high. It has little to do with this government's deficit reduction strategy. The fact is that interest rates are not actually as low as Peter Costello would like us to believe.

Any economist can tell you, even the tub-thumping economic rationalists that you listen to and that you are eager to impress, that it is not the nominal rate of interest that is important, rather it is the real rate of interest when you adjust for inflation. Adjusted for inflation in real terms, home loan interest rates are now two per cent higher than they were when Neil Armstrong walked on the moon in 1969.

Australian businesses face the highest interest rates on business loans in the industrialised world, largely because of this government's abject failure to do anything about the banks, to regulate them properly and rein in their whopping profit margins on loans. The Netherlands, for example, which has a lower unemployment rate than Australia, a higher budget deficit and a much higher level of public sector debt, provides for its business sector loan rates five percentage points lower than Australia. What the Netherlands has that Australia hasn't is a much lower current account deficit. In fact, Australia's current account deficit is forecast to rise from $18 billion last year to $31 billion next year.

If you look in the budget to see if it addresses that, you will find there is nothing there. Instead, the budget fails to undo the $125 million cut to the export market development grants scheme, the $120 million cut to soft finance for Australian companies to invest in developing countries, the $90 million in cuts to Austrade's programs, the $400 million cut to tax breaks for research and development, and the $300 impost on business inputs through tariff concession orders.

The Democrats believe that Australia must pursue export markets more aggressively, chase business investment and generate jobs and economic growth. We also believe that foreign investment must be in Australia's interest, rather than just adding to our current account deficit as it does now through repatriated profits. This budget fails on all these counts as well as failing to repair the damage done across a wide range of community services.

The budget contains no good news for the unemployed with the admission that the unemployment rate is expected to stay stuck around the current level of eight per cent during all of next year. The only use for the unemployed is that, if you are unemployed now, you are likely to stay that way.

Senator Kemp —It doesn't say that at all.

Senator LEES —I would check your budget papers if I were you, Senator, because the forward estimates for unemployment benefits suggest that Treasury is planning for unemployment to stay stuck at at least eight per cent for the next four years. The only new news in the budget was that another 9,000 public sector jobs are to go, bringing to 32,000 the total of number of jobs slashed by this government. Compare that to the government's pre-election promise to confine public sector retrenchments to just 2,500 over three years. That is another one of those optional promises and non-core promises that we had.

The aged, we are told, are big winners from this budget. The Democrats certainly welcome the extension of the seniors health card to self-funded retirees. I do remind the government, however, though, that I first called for that five years ago, and it has been a long time coming. When you factor in the higher cost of pharmaceuticals, the fact that many doctors have given up bulk-billing, the longer waiting queues and the longer waiting lists in our public hospitals, I doubt if too many of Australia's aged can say they are better off now in terms of health than they were three years ago. What we are particularly disappointed about in this sector is that there was nothing in this budget to address the $1 billion shortfall in capital funding in nursing home facilities, particularly in regional areas.

The other big winner was supposed to be the bush. But, like so much else in this budget, when you really look at it up close, there is nothing in it. The Democrats do welcome the small new measures for the bush such as the tax rebates for landcare projects, a bit of extra funding for regional development and a small boost to rural health. But these measures are very small beer. They do not address the steep decline in regional Australia caused by the massive public sector cuts, massive cuts to services, massive cuts to infrastructure funding for roads, local government and things like nursing homes. We all know what is happening to rural hospitals and schools. Then, of course, there is what you are doing to the ABC.

The really bad news for the bush was the inclusion of the Telstra sale proceeds into the budget papers. Telstra's service capacity in the regions has dropped significantly since the staff cuts began in preparation for the sale. In regional Australia, they know they can expect a greater decline if the rest of Telstra is sold. Regional Australia will also suffer from this government's continuing and pathetic vendetta against the ABC. Indeed, we heard more of that after question time today. Just $20.8 million is provided to fund the ABC's digital conversion, less than a quarter of that recommended as an absolute minimum by the Arthur Anderson report. This will mean that regional Australia is unlikely to get the full benefits of the ABC eventually converting over to multi-channel digital technology.

Australia's farmers are big losers. Australia's family are particularly big losers. Cuts to child care, the continuing squeeze on public schools and the huge cuts to tertiary education remain firmly in place. In the area of health, this budget succeeds in putting back only one-third of the $1 billion of annual cuts inflicted on the public health system. I repeat: your cuts are $1 billion annually, and it is from that that we must look at the current budget. Most of the few health initiatives such as the gold card for veterans have already been announced. Other existing programs such as the influenza vaccine initiatives and funding for medical research have merely been extended. This budget does nothing to address the most important health issue facing our nation—that is, the serious underfunding of our public hospitals. All this budget has done is to repackage again the offer to the states that they have already comprehensively rejected on a number of occasions.

The Democrats do welcome the return to the full indexation of Medicare rebates, but we add that this should not just be a one-off increase for a year. All the evidence is though that this will not be enough to get many of Australia's GPs back bulk-billing. Those who gave up are unlikely to reverse their decision. We also welcome the modest increase in funding for indigenous health, although small handouts will not address the fundamental issue of Aboriginal people's right to self- determination, a right which has been continually undermined by this government.

This budget contains very bad news for the environment, hidden in sleight of hand arithmetic which mixes core funding with funds from the Natural Heritage Trust. In other words, I think it is going to take a lot of questioning at estimates to try to unravel this particular puzzle. Funding for the Great Barrier Reef Marine Park Authority is to be cut by 20 per cent despite an increase in its responsibilities. Indeed, I think the environmental priorities of this government are best demonstrated by Warwick Parer's win of an extra $36 million to find new fossil fuel, oil and gas deposits. Interestingly, this is exactly the amount cut from the Energy Research and Development Corporation, an organisation established to research cleaner, renewable energy sources for our future.

On the tax side, the government has announced—if that is the correct word—that the provisional tax uplift factor will be cut from six per cent to five per cent, but that was already going to happen, Senator, because of amendments made in this chamber some two years ago. The new concessions for computer software and dealing with the millennium bug are important and generally welcome, but I have little faith that your tax crackdown on high wealth individuals will get very far—this seems to be an annual announcement—until your government gets serious about tax reform and addresses the use of trusts, personal service companies and other tax planning devices. These crackdowns will be basically ineffective. We will be back again next budget. Let us have another round of tax crackdowns.

On the revenue side, the government perversely fails to recognise the negative effects of the sale of Telstra; the effect it will have on future budgets if it is sold. Based on Telstra's 1996-97 profit performance, the sell-off of the remaining two-thirds of Telstra will cost the Australian public sector approximately $560 million a year. The failure to tell the true story of the impact of Telstra on future budgets really puts the lie to this government's much vaunted charter of budget honesty. The government does admit it will be spending $580 million to sell the rest of Telstra. One piece of honesty is that which points out that the real winners of the Telstra sale will be the stockbrokers, the financiers, the lawyers and the advertising agency who will actually run your float. They have already pocketed an estimated $300 million from the sale of the first one-third.

In short, the 1998 budget will be remembered as the one with nothing much in it. There is nothing in it to start the process of repairing the damage done by the $7 billion in cuts which largely, as we have shown, have been unnecessary. There is nothing to boost the economy, business confidence and investment, employment and export performance. And of course there is nothing in it about tax reform. Your plans on what sort of a GST we are going to be having and what you intend to inflict on Australia remain hidden. These are very great failings.

On budget night I said as an ex-teacher that I would have marked the budget two out of 10 and instructed the student to repeat the exercise. Sadly, Peter Costello is unlikely to redo his budget. However, the Senate would be in error if it did not try to repair at least some of the economic damage arising from the spending cuts. The Senate is unable to touch the outlays side of the budget but we can move to modify some of the new measures on the revenue side. What the Democrats propose is to provide some incentives through the tax system to encourage business to innovate, export and employ. We propose to do this in a way that does not affect the budget bottom line but has the potential to improve the current account deficit and lower the unemployment rate.

The Democrats have already announced that we will move to means test the savings rebate announced in last year's budget, and that will save about $1 billion in the year 2000. We will also move to restore the full benefit of the export market development scheme by providing an equivalent tax rebate where an eligible firm is denied funding because of the cap imposed on the grants scheme. We will move to restore the R&D concession up to 150 per cent to encourage business. These two measures alone will provide a very significant boost to Australian business, helping them to get on with the job of chasing new markets and opportunities.

We also propose to move amendments to the tax act to provide important and necessary relief to small business. Let us remember that small business has been doing it pretty tough in the last year. Mid last year, the Yellow Pages index reported that most small businesses regarded the economy as in recession or at a standstill. Bankruptcy rates have soared. Small business income rose in 1997, but just by 1.7 per cent. Yet for provisional tax purposes, under your government, you have deemed that incomes have soared by six per cent.

Budget papers forecast economic growth of three per cent and income growth of 4.25 per cent, yet we have a provisional tax uplift factor of five per cent. This means that your government will be collecting $75 million extra off small business in the year ahead. We will move to reduce the uplift factor to four per cent and provide a very welcome $75 million boost to small business cashflows. And we will move to correct the anomaly in the sales tax system that places independent retailers at a disadvantage against big retail chains like Coles and Woolworths, which own their own wholesale operations. These measures will help small business get on with the business of creating new jobs and opportunities, despite the enormous cost of finance they face because of your reluctance to tackle the banks.

In taking these actions, the Democrats are demonstrating that we are deadly serious about getting unemployment down. We are deadly serious about improving Australia's trade position, and we are deadly serious about ensuring that small business remains a vibrant and growing generator of new jobs. If these measures win the support of the rest of the Senate, it will then be up to government to accept or reject them, as they bring with them a proven record of creating jobs and opportunities.

The Democrats will be watching very closely to determine whether the government is prepared to match its rhetoric with some action. In particular, the Democrats will be putting pressure back on the government to repair the damage done by the spending cuts to Australia's economic and social fabric and to get more Australians back to work.

In conclusion, the Democrats believe that, despite the government's windy rhetoric, there is nothing in this budget as it stands. This budget might have been put together by the scarecrow, the tinman and the lion from the Wizard of Oz—no brains, no heart, no courage and certainly no yellow brick road for anyone other than the high priests of the financial markets. This budget does not set out a blueprint for the sort of equitable, the sort of fair and the sort of just and compassionate society which all fair-minded Australians want. That is what we looked for when we opened the budget papers yesterday, but there was nothing much in it.