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Wednesday, 1 April 1987
Page: 1835

Mr CARLTON(10.01) —The Appropriation Bill (No. 3), the Appropriation Bill (No. 4) and the Appropriation (Parliamentary Departments) Bill (No. 2) ask the Parliament to appropriate additional moneys beyond those asked for in Appropriation Bills late last year following the Budget. The Opposition does not object to the passage of these Bills but, on behalf of the Opposition, I move:

That all words after `That' be omitted with a view to substituting the following words:

`whilst not declining to give the Bill a second reading, the House-

(1) condemns the Government for its continued mismanagement of the economy which has seen:

(a) interest rates for business, farmers and home owners soar to record levels;

(b) inflation rise to almost 8 times the average rate of the major 7 OECD economies;

(c) Australia's overseas debt surpass the $100 billion mark;

(d) the value of the Australian dollar cut by one-third, and

(2) calls on the Government to implement significant and genuine expenditure cuts of the order of $4 billion in its May economic statement as a first step to restoring balance to its policies and reducing interest rates'.

In the course of this debate I shall take the opportunity of looking at some fundamental problems in the Australian economy and doing it as far as possible in a way that is not politically partisan. The country faces a very grave economic crisis, and I think it is important for us to understand just what the origins of this crisis are and how we can sensibly, as a parliament and as a nation, face up to them.

I think it is fair to say that not all the economic problems that face us in Australia today are the fault of the Hawke Government or result from the Keating Budgets. For many years, I have been one of those at the forefront of acknowledging that the Australian economy has suffered from some underlying structural problems. These problems basically have stemmed from the fact that the country has been too reliant on rural and mineral commodity exports to make up for deficiencies in other areas. In other words, whenever mineral commodity prices have been good around the world and there have been abundant markets for rural products, Australia has been fortunate enough to be able to rely on the income from its sales of those commodities abroad to make up for its rather poor performance across its export manufacturing and export services areas. The amount of investment, attention and managerial effort that has been devoted to those other sectors has for many years been inadequate.

Additional to that, there have been structural rigidities in those parts of the economy that might have improved our performance in manufacturing and in the export of services. I refer particularly to a somewhat overprotective environment in Australia over a very long period. There was excessive protection in some areas of manufacturing, excessive protection and regulation within the financial markets, a high level of government intervention creating excessive cost structures in the basic functions such as communication and transport, and excessive cost inputs in other industries which has made Australia less competitive than it should have been.

One of the principal areas of rigidity in the economy which has made us less productive has been an 80-year-old industrial relations system, which whilst it might have served us well in earlier days, in different times, has in more modern times come to reduce the productiveness of industry, particularly the productiveness of manufacturing industry, transport and communications. Those underlying problems have been with us for a very long time. When the Fraser Government took over in 1975 many of those underlying problems had been obscured by a period of economic and industrial lunacy. In 1975 when the Fraser Government came in the country had suffered major setbacks. It was a period of economic and industrial lunacy. During the three years of the Whitlam Government spending in real terms-that is after inflation-had gone up by an average of 10 per cent. Wages had gone up by over 30 per cent in just one year. There was a period of what could only be described as industrial mayhem. It is not to the credit of the present Prime Minister (Mr Hawke) that he was the head of the trade union movement during that period, a period when he was also supposed to be supporting the Labor Government. In one particular year during the Whitlam Government we had six million man days lost in strikes. It was the most disgraceful strike period in Australia's history. We had a period of raging inflation. The period from 1972 to 1975 left very deep scars on the Australian community, not just regarding the manner of the departure of that particular Government, but deep economic scars some of which are still with us.

The Fraser Government, which is much maligned not only by the present Government but also by a number of people in the community who supported most of its objectives, actually achieved quite a lot. The most important thing it did was to reintroduce a climate of fiscal responsibility. The Fraser Government came in during a period when inflation was raging and government expenditure had averaged 10 per cent in real terms over the previous three years. It was the job of the Fraser Government to clamp down on public expenditures and try to get the Budget back into shape.

It also came in with the objective of trying to make the old industrial relations system work-the then 70-year-old system-because it was believed that it could be got to work in the way that it worked under Albert Monk as President of the Australian Council of Trade Unions. It was felt by the Fraser Government that the period under Mr Hawke, the present Prime Minister, was an aberration of history. It was genuinely felt that it was possible to get that industrial relations system back into working order. A number of changes were made in industrial legislation to try to do that. For example, secret ballots were introduced for union elections which were court controlled or Commonwealth Electoral Office controlled. Sections 45d and 45e were inserted into the Trade Practices Act so that secondary boycotts put on by unions could be dealt with in the ordinary courts. Those sections have certainly been quite successful.

The Fraser Government also began the process of reform of financial markets. In 1979 it set up the Campbell Committee of Inquiry into the Australian Financial System, which was one of the very few committees of inquiry in Australian history which actually had a clear cut set of philosophical riding instructions. It was not, like most previous important committees of inquiry, made up of representatives of the various competing interest groups. It is also fair to say that before the Fraser Government left office the momentum created by Campbell had had its effect in legislation, certainly in public debate, and or course it was a valuable head of steam that was taken up by the now Treasurer (Mr Keating) in his subsequent further deregulation of financial markets.

Looking back on that period of the Fraser Government, it can be seen that it certainly brought back a climate of fiscal responsibility. It made useful changes to the existing industrial relations system and it began the process of financial deregulation. Looking back on it, compared with its predecessor government and also compared with the present economic crisis, its position in history is improved day by day.

The industrial relations reforms carried out by the Fraser Government were not enough to deal with the deep-seated underlying problems of that system. As a result in 1981-82 we had the metal trades wages break out. There was about a 25 per cent unearned increase in incomes in that industry which, under the centralised system, spread across to other industries-exhibiting yet again one of its faults-many of which were unable to cope with such an increase. Indeed, the initiating metal trades industry could not cope with that and there were very severe employment implications within that industry.

In retrospect it is quite clear that the Fraser Government did not sufficiently attack some of the areas of protection and overregulation in the Australian economy. I was one of those during that period who fought very strongly for a more open market view. I make no secret of that; it is all on the public record. I believed at the time that the Fraser Government was not sufficiently deregulatory and that in some cases it was supporting an excessive degree of protection. That is a matter of public record and it has certainly been a part of my political life and my political objectives to move towards a more open market economy.

It is also fair to say that most current day business critics of the Fraser Government-that is, critics in retrospect-strongly opposed changes to existing protective systems at the time of that Government. I am well aware of that because as one of those active in the move towards a more open economy, I am very well aware of those institutions, bodies and people within the business community which were strongly against moving towards an open economy. Many are currently critics in retrospect of the Fraser Government. I say that merely in passing. Some people in the business community still oppose some of the proposals we have for freeing up the labour market, but they are increasingly few in number.

Towards the end of its period in office the Fraser Government suffered from three major economic shocks. Two of these shocks were external; one was internal. I point out with some sorrow one major element of the disinformation campaign that is conducted by the Prime Minister and the Treasurer in this House. They come out with statements which are clearly absolutely untrue. On 30 March in the House of Representatives-earlier this week-the Prime Minister said this in answer to a question:

The first fact to note is that the Leader of the Opposition walked out of the Treasury office after ha-ving, in his five years of economic stewardship of this nation, no external crisis imposed upon him . . .

That is an incredible statement from the Prime Minister of this nation. There were three major shocks-two of them external and one internal. The first one was the world recession. The Gov-ernment is quite fond of quoting the effects of the decline in the terms of trade on the present economic situation, but may I say that the combined effects of the world recession in 1981-82 on Australia, plus the effects of the most devastating drought in living memory, had an effect on Australia's economy which was far in excess of that currently being suffered because of a decline in the terms of trade. Far from there being no external shocks or crises imposed on the Fraser Government, as the Prime Minister quite untruthfully claimed on Monday, in the last two years of the Fraser Government the United States of America, West Germany, Italy, Canada and the Organisation for Economic Co-operation and Development as a whole experienced negative growth. The contraction in the economies of the OECD countries in 1982 was the most severe ever recorded by that organisation. By contrast, during the four years of the Hawke Government the United States of America has recorded growth in excess of 4 per cent on average and the OECD countries have recorded growth in excess of 3 per cent. That is the record and it is quite clear.

It is clear also that the total cost to Australia in terms of loss of export income as a result of the recession, from my calculations, is to the order of $10 billion in current dollars. We acknowledge that there is a loss of national income due to a decline in the terms of trade at the moment of about $6 billion, and that is a severe blow, but the Fraser Government, because of the world recession and the drought, suffered a loss of national income externally to the extent of $10 billion in current dollar terms. So it was a far more severe shock. The difference was in the period of preparation that had gone on up to those shocks. The third shock, incidentally, was the wage break-out I mentioned earlier. That was internal and imposed through the excessive power of the trade union movement, making use of the existing industrial relations system. Indeed, that was the evidence, if we needed it, that that old system could not work for much longer.

Before those shocks occurred, the Fraser Government's fiscal record was excellent. The expenditure increases under the Lynch and Howard Budgets were very minor. For example, in the 1976 Budget there was a minus 0.9 per cent real increase in expenditure; in the 1977 Budget it was 2.5 per cent; in the 1978 Budget it was 1.5 per cent; in the 1979 Budget it was minus 0.9 per cent; in the 1980 Budget it was 3.5 per cent; and in the 1981 Budget it was 2.6 per cent. It was only in 1982, in the recession Budget, when things were very difficult and a number of steps were taken to try to revive the economy, that the increase was 6.9 per cent-still less than the first Keating Budget. So the average increase in real terms over the seven years of the Fraser Government was 2.1 per cent.

It was due to the prudence of the then Treasurer, now Leader of the Opposition (Mr Howard), in being very careful in putting money away during the good years that Australia was able to cope with that very grave recession and drought. Had the present Treasurer been in that position at that time and carried out the profligate spending programs that he undertook when he got into office, we would have been no better prepared as a nation to face that recession and the drought than we were prepared to face the current problem of the decline in the terms of trade. That is the essential point: A whole period of six years of prudence before the recession enabled Australia to survive that recession, even though there were major underlying structural problems in the economy of a long-standing nature.

All this should have taught Australia four things. It should have taught us the need for fiscal prudence in the good times. It should have taught us the basic need for fundamental reform of the industrial relations system, because it had not worked in 1981-82. We still have the same system now and the threat of a wages break-out is still with us. It should have taught us that there was a need for greater deregulation in the Australian economy, and it certainly should have taught us that there was a need for investment in a whole lot of areas of export potential outside rural and mineral commodities.

The recession led to the defeat of the Fraser Government, but basically the policies of the then Treasurer, now Leader of the Opposition, had prepared the country to cope with that recession. The incoming Government had these benefits: The end of the world recession; and the rains came down, so the drought went. It also had in place the 12-month wage pause on rises in incomes which was imposed by Fraser because of the crisis; and it inherited the momentum coming out of the reforms of the Campbell Committee of Inquiry into the Australian Financial System.

Unfortunately, the first period of the new Government was sullied by a major disinformation campaign as to its inheritance. It is not to the credit of anybody that this was taken up so widely. The present Prime Minister, the present Treasurer and a number of people in the Press Gallery who did not understand the figures-many of them did but a majority of them did not or did not bother to-used the $9.6 billion deficit figure dishonestly to discredit the current Leader of the Opposition. It was a shameful episode. It is to the discredit of all those who took part in it.

The facts illustrate the extent to which the fiscal responsibility of the present Leader of the Opposition helped our national recovery. Let us look at this supposed figure of $9.6 billion. It was actually a forward estimate produced by Treasury in February 1983 for the financial year 1983-84. So it was well in advance of the financial year. Such a figure is not normally published, because of its uncertainty. Such a figure was not published the following year by the present Treasurer because, he said, it was too uncertain a figure. Nonetheless, such a figure was used in 1983. The fact is that the last Howard Budget, which was brought down during the recession, had a deficit of $4.4 billion-nowhere near the $9.6 billion figure. It was 2.7 per cent of gross domestic product-nowhere near the 5 per cent inheritance consistently and untruthfully claimed by the Prime Minister, even this week. The present Treasurer, in the 1983 Budget, had a deficit of $7.9 billion, 4.2 per cent of gross national product, much higher than the percentage in the previous Howard Budget, after he increased spending by $7.6 billion. The present Treasurer did not inherit a spending problem; he actually created it. If the $9.6 billion forward estimate of deficit were correct the extra spending by the now Treasurer of $7.6 billion would have left a deficit of $17.2 billion. If the present Treasurer had not spent $7.6 billion more the deficit would have been $0.3 billion. This shows the cyclical nature of the 1982-83 deficit. It also indicates the profligate nature of the 1983 Budget.

We see that the careful preparations of the then Treasurer for the recession had paid off and it would have been quite possible for the now Treasurer in 1983 to have brought in virtually a balanced Budget if he had not increased spending to the extent he did. There was no $9.6 billion legacy at all; that is a piece of disinformation which is of no credit to the Government. I have here the glossy booklet produced for the Australian Council of Trade Unions at taxpayers' expense, `Accord: The First Two Years'. It is a very good record glossily presented. It shows inflation, interest rates and unemployment falling. None of these things derives from the Labor Government's decisions. It did one good thing, which was to float the dollar to continue the momentum of the Campbell-Howard reforms.

A second piece of disinformation came out. It concerned the devaluation of the dollar. The Government is embarrassed because under its stewardship the value of the dollar against the trade weighted index-that is, all the people we mostly trade with-has gone down by one third. In other words, the value of Australia Ltd on the world stock exchange has fallen by one third under the Hawke Government. Of course, in that same period Australia has lost its first class international credit rating with the two major agencies. It is claimed as an excuse that the dollar was overvalued under the Fraser Government. There is proof that it was not. When the Hawke Government was elected it devalued the dollar by 10 per cent and then it managed the value of the dollar upward by about the same amount. Then, in December 1983, it floated the dollar and for 13 months the dollar stayed up at the same high level it was at under the Fraser Government. It stayed up for 13 months in free float on, if you like, the world stock exchange. It was only when there was a severe loss of confidence in the economic management of the Hawke Government at the beginning of 1985 that the dollar started its disastrous decline. The dollar was not overvalued under the Fraser Government at all, as this chart I have with me and all the figures show.

It was the fiscal irresponsibility of the first two Keating Budgets that dug Australia's economic grave. In 1983, when we should have been putting money aside and being prudent for external shocks to come, we spent an extra $7.6 billion, a 15.7 per cent increase or 7.4 per cent after inflation-a deficit of $7.9 billion. It could have been nearly zero. In 1984 expenditure went up again by $7.3 billion, up 12.9 per cent or 6 per cent in real terms. In other words, in his first two Budgets the present Treasurer, not following the road of the previous Treasurer, did not prepare us for any shocks that might come. We could have had a major rise in oil prices. We could have had an international recession. We could have had a drought. What hit us was a decline in the terms of trade worse than we had suffered over the last 20 years. There has been a decline in the terms of trade. The warnings were there. They dipped substantially over a period. We were unprepared for it because we had spent all the money and we had borrowed very severely.

This was a totally mistaken macroeconomic policy. Added to this, the Treasurer introduced a totally mistaken tax policy which was anti-investment, which was inflationary and which left serious distortions in the tax system. This added to inflationary pressure and killed off investment. The signals were there for a very long time that we were heading into trouble. Because of a combination of pride and pigheadedness the Treasurer refused to act. The Budget in 1985 warned of the problems of the terms of trade. The Treasurer did not act. In November 1985 the balance of payments was bad, inflation was up, wages went up too much and the dollar plunged. Still the Treasurer did nothing. As late as 9 May 1986 he told the Economic Planning Advisory Council that everything was all right. A few days later, after some more bad figures, he told us that we were heading towards being a banana republic.

In July 1986 the dollar fell again. The Prime Minister declared a state of war in relation to the economy but subsequently the Government introduced a weak Budget. It did not fix the economy. It did not restore international confidence. That is why we now face a mini-Budget in May. If this mini-Budget does not peel about $4 billion off the forward estimates in a genuine expenditure cutting exercise, confidence will not be restored yet again. There has been a failure to tackle the whole issue of reform of the industrial relations system. I do not have time to deal with that.

The constant cry of the Government has been that the Opposition has put up no proposals on economic policy and does not debate these matters in the House. Today my speech is one of a long series of speeches I have made on the subject and a long series of speeches made by the Leader of the Opposition (Mr Howard) and the Deputy Leader of the Opposition (Mr N.A. Brown), who is responsible on our side for labour market issues. I have here a long list, with dates, of all the times we have put forward serious economic proposals. The lengthiest proposal was put out recently, on 14 December-a statement on the economy in which we called for decisive action to stop economic drift. We called for the implementation of a new budgetary framework and an initiation of the necessary structural changes in the economy, asking for a completely new Budget early in 1987 to include substantial spending cuts and genuine taxation reform to restore incentive to individuals and businesses and to remove the current bias in the tax system against families. We asked for an immediate announcement that anti-investment taxes, such as the fringe benefits tax and the capital gains tax, would be repealed. We asked that a fresh application be made to the Australian Conciliation and Arbitration Commission which, if proceeded with, would have headed off the very poor decision that was handed down a few weeks ago.

We also proposed the scrapping of the insane legislation to implement the recommendations of the Hancock Committee of Review into Australian Industrial Relations Law and Systems which would further entrench trade union power. We asked for an all-out war against unnecessary regulation at all levels of government, including the scrapping of the notorious identity card, so as to provide the maximum incentive for investment and enterprise. We asked for the removal of the remaining foreign investment controls except in certain strategic areas. We also asked for a boost in immigration with priority given to those with entrepreneurial capacity and skills required to boost private investment.

Over and over again in this House and outside it we have put forward responsible, clear proposals for this economy to recover and time and time again the Australian Labor Party, the Government has rejected those proposals. As a result, we have inflation at 10 per cent; the highest interest rates, in real terms, in our history; a $100 billion overseas debt, and little prospect of recovering from that situation in the foreseeable future.

Madam SPEAKER —Is the amendment seconded?

Mr MacKellar —Yes, I second the amendment.