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Tuesday, 10 February 2009
Page: 616

Senator TROOD (2:35 PM) —My colleagues on this side of the chamber have been eloquent in their criticism of this package. They have drawn attention to its irresponsibly large size. They have drawn attention to its poorly targeted elements, most especially, of course, the deeply ill-considered cash handouts. They have noted the unproductive spending involved in the package, in particular the insulation component. They have drawn attention to the highly dubious claim that this package will preserve and create jobs—a claim made in the context of the government’s own Treasury figures which say that by mid-2010 this country will experience seven per cent unemployment.

On all measures, the package contained in Appropriation (Nation Building and Jobs) Bill (No. 1) 2008-2009 and related bills fails the test of good public policy. And the sad thing is that there were so many opportunities missed—opportunities for innovation and opportunities to look to the future. There was a failure, for example, to address the obvious need, in particular areas of the economy, in relation to the failing health system or the chronic need for further investment in aged care. And there is an absence of any meaningful assistance to small businesses. Here was an opportunity to lower the cost of employing people, when that is precisely what is required by the economy, by providing the ability for small businesses to take on more people at a time when this would have been of immense assistance—not only to the individuals concerned but to the nation as a whole.

Nor does this package provide for tax cuts. One of the important elements of the Obama package in the US is the tax cuts. Tax cuts make up a substantial proportion of that package because they are recognised as being likely to make a particular contribution to stimulating the American economy. Tax cuts are widely regarded by economists as being a very effective way of stimulating the economy. So by commission and omission this package falls well short of the nation’s need.

We are not against the nation spending money on a stimulus package at this time. What we do require, though, is that there be a stimulus, and not merely spending. This package betrays all the signs of having been conceived in panic and designed in desperation. The idea that the parliament should not scrutinise the package closely—that the whole package should be rushed through—is an offence. It is an offence against good reason as much as it is a contempt of the parliament’s obligation to hold the government to account and to scrutinise public spending.

There has been widespread criticism of the package, and not just by those of us on this side of the chamber. Many constituents have written to my office and expressed concern about the structure of the package. Interestingly, there have been an increasingly large number of economists writing in the daily newspapers who have been critical of the package. In the op ed pages one particular article struck my attention. The former Treasurer of New South Wales, Mr Costa, wrote about this recently. Having escaped the cesspit of New South Wales Labor politics he now feels free to give range to his views, and in the Australian a few days ago he wrote:

Rather than economic solutions, Rudd is seeking ideological retribution.

Who of us on this side of the chamber could disagree with that proposition?

This package will impose a heavy financial burden on every Australian for years to come. Once again we see the ALP taking us down the road of ever-larger budget deficits. As a proportion of GDP, debt will increase significantly. By the time the $200 billion of borrowing is spent, every single one of us—every man, woman and child—will be left with a debt nearing $10,000. Of course some day we will have to pay it back, as we will have to pay the interest on the debt as time goes on. Paying the interest and repaying the debt will demand higher taxes, spending cuts and severe financial restraint.

But there are other costs of this profligacy. The package will impose a burden on every Australian. It will not be just a personal burden. The personal burden will be severe enough, but there will be policy constraints which will almost inevitably follow, just because there is not enough money to spend on important national initiatives. It is a simple proposition: budgetary debt cripples public policy. The choices that governments have are almost always constrained when they are dealing with large amounts of debt. This, of course, will affect all facets of public policy, but I am particularly interested in the consequences that this might have for our national security.

One of the great virtues—one of the many virtues—of the Howard government was its responsible approach to economic management. Carefully, purposefully and painstakingly the Howard government paid off debt and accumulated surpluses and in doing so it left Australia free to meet the numerous challenges that confronted us in the international arena. We were able to meet those challenges with confidence because we knew that the budget was taken care of.

It is an elementary proposition of good strategy that you align policy ends with available resources and means—and that is what we were doing under the Howard government. Now that we are again slipping down this slope of increasing debt, that critical strategic principle is once again under attack. It is under attack when the international security agenda is getting no easier and when the challenges of the international environment are not diminishing but actually expanding in a very disturbing way. Whatever may be said about the global financial crisis, and whatever predictions we might make about its direction, one thing of which we can be absolutely confident is that it will have some unexpected consequences.

It is as well in this context to reflect on the Asian financial crisis of 1997. When it occurred, almost nobody had any expectation that it would profoundly affect any of the governments of the Asia-Pacific region. No-one anticipated that it would destabilise governments, but by May 1998 a regime which had seemed immovable, which had been in power for 30 years—the Suharto regime in Indonesia—had been toppled and swept from power. That great country to our north had been placed on a path to democracy as a consequence of that financial crisis. Without doubt, that is one of the most significant and important political changes in our region since World War II.

This crisis is far more serious and it will generate widespread political and strategic fallout. We have only to reflect on the Great Depression. I am not for a minute suggesting that this crisis is necessarily as serious as the Great Depression, but I notice the Prime Minister, in his capacity for hyperbole, is always reaching for the analogy. But as students of history we ought to remember and to be aware of the fact that profound economic dislocation almost inexorably leads to political unrest and instability and, not infrequently, to conflict. In my view, we are a long way from that serious deterioration in events at the moment, and we could be spared the need for substantial increases in spending on national security as a result of the global financial crisis, but we still have to preserve our capacity to advance and protect our national interests through military means, through diplomacy and through other means.

The troubling thing at the moment is that the impact of this crisis globally is already becoming very evident and the geopolitical landscape is anything but reassuring. Already governments are turning inwards and economic protectionism is on the rise. Global economic growth has stalled, with reduced demand for exports, declining commodity prices and reduced capital flows. As a consequence, some states are forced to seek support from the IMF as they struggle to remain solvent. For others, especially emerging economies, this kind of support will not be enough and they face the prospect of falling deeper into poverty, with all the serious stability questions and consequences that follow. It seems likely that the millennium goals will recede further from attainment and we could easily see an increase in the failed state phenomenon as a result of this contraction in the world economy.

Some commentators have mentioned the possibility that one of the significant consequences of the financial crisis will be a shift in global power from West to East. More specifically, they have argued that America’s anticipated strategic decline will be advanced. I have to say I have always been deeply sceptical about that prediction of America’s imminent decline. All great powers are affected by this crisis, and they are affected seriously, but the United States has always had great resilience and a great capacity for recovery, and I anticipate that will be the situation on this occasion. But, with its massive currency reserves, China seems well positioned to take advantage of the crisis—for example, to strengthen its energy security.

We are likely to see a shift in power in some significant international institutions such as the IMF. The G20 will become a more significant player in the international economy. It will be more difficult to manage sustainably the global environment in these circumstances, and there will be many other consequences, not least in the Asia-Pacific region, where it is notable that there has been a very significant downturn in trade and a significant contraction in economic activity. Not all of these developments need to be worrying. Not all of these developments mean that we are in for a period of heightened danger or threat, but they do pose foreign policy challenges and we need to be conscious of those challenges, particularly in the context of an already long list of foreign policy problems.

The new Secretary of State in the United States, Mrs Clinton, when giving evidence before the US Senate Committee on Foreign Relations at her confirmation hearing, talked about the great perils that exist in the international arena. She mentioned things like the spread of weapons of mass destruction, the war in Afghanistan, the persistent threat of terrorism and pandemic disease. All of these existing challenges could well be exacerbated by the consequences of the global financial crisis. They add to our discontent. One way or another, Australia is going to have to meet these challenges. One way or another, these challenges touch our national interests. Rudd’s policy prescription seems to me almost certain to erode our capacity to respond effectively to these international challenges. In my view, he already has a deeply indifferent record on foreign policy management. Now he will be forced to contend with the consequences of rising national debt and severe constraints on financial resources.

The sober reality is that this national debt will overhang the Commonwealth budget for years to come. It cannot help but constrain spending and affect critical policy choices that we are going to have to make about national security. One wonders how the government will be able to honour its commitment to maintaining defence spending of three per cent in real terms every year to 2017. The Department of Foreign Affairs and Trade is already struggling with severe budgetary pressure; in my view it needs somewhere between $20 million and $25 million per annum to get back on an effective footing. One wonders where that money will come from. One wonders how the government is going to secure its commitment to increasing Australia’s foreign aid budget to 0.5 per cent of GDP by 2015.

Then there are the emergencies—the things that always occur in international affairs, the things that always arise when one least expects them and for which we have to be prepared. They are situations like East Timor, the Solomons and the continuing conflicts of the need to challenge the oppression that exists in Afghanistan. This government is putting this country in a position where foreign policy and national security choices are becoming immeasurably more difficult. The budget overhangs not just the economy but also our national security.

It is interesting that the member for Higgins in the other place published his memoirs last year. I am sure you have read the memoirs, Mr President, and perhaps you are familiar with the anecdote that he recites on page 335. He mentions a conversation he had early in 2007 with Lee Kuan Yew. This is the Lee Kuan Yew who is famous for having said of Australia some years ago that we were the white trash of Asia. The member for Higgins, in conversation with Mr Lee Kuan Yew, says to him: ‘I remember you made this comment about Australia being the white trash of Asia. What is your view now?’ Lee Kuan Yew is said to have responded, ‘You have changed; your country is a different place now.’ One wonders whether or not the place has changed as much as we all would have hoped at the end of the Howard years, when the budget was in balance, when we had surpluses and when we had very sound and strong national security.