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Thursday, 31 August 2000
Page: 17147

Senator SHERRY (6:35 PM) —This is a report by the Foreign Affairs, Defence and Trade References Committee about the Japanese economy and the implications for Australia. This is a very important report. From the brief time I have had to peruse it, I think it is a very comprehensive report. The report makes the point that Japan is, and has been for some decades, Australia's major trading partner. Page 107 of the report details by value the main export commodities to Japan from Australia. There is a very extensive and impressive list of exports to Japan—meat and meat preparation, cereal grains, metalliferous ores, coal and fish. As an aside, I think it is a matter of regret that much of what we export to Japan is basic raw material and no greater value adding takes place in the Australian economy. I will say a little more about that later on.

The report also highlights on page 108 the enormous increase in the number of visitors to Australia from Japan. Table 5.7 shows that the number of visitors from Japan rose from 34,000 in 1978 to 479,900 in 1990. I do not know what the latest figures are. I am sure there are later figures available. But that illustrates just how important the Japanese tourist industry is to the Australian economy. In fact, in 1990, they were the largest contributors in terms of visitor numbers. So the basic health of the Japanese economy is obviously very important to Australia.

Regrettably, the Japanese economy in recent times has not performed well. This is outlined in chapter 3. Page 33 illustrates the annual growth rates for Japan from 1991. In 1991 there was a growth rate of three per cent; in 1992, it was 0.4 per cent; in 1993, it was 0.5 per cent; in 1994, it was 0.7 per cent; in1995, it was 2.7 per cent; in 1996, it was 3.4 per cent; and in calendar year 1997 it was back down to 0.9 per cent. I would just make one point about the growth rate in 1997. This was when Japan increased their goods and services tax. They had introduced a VAT or a goods and services tax as part of an earlier measure known as a `stimulatory' package.

Japan has seen a succession of stimulatory packages: initially an introduction of a GST and then the increasing of that GST in 1997. So, if Japan is anything to go by, using GSTs or VAT taxes as stimulatory packages has resulted in little in terms of positive economic outcomes. It is disappointing—I have only had a cursory read of this report—that it does not refer to the dismal failure of the GST as part of those stimulatory packages in the Japanese economy. It does make reference to the collapse in public confidence that accompanied that 1997 stimulatory package, but I cannot see any reference to the impact of the GST.

One of the great problems in the Japanese economy was the property boom and the bubble economy that finally burst in 1990. As part of that, of course, the level of debt owed by Japanese financial institutions in 1980 had accounted for 56.8 per cent of gross domestic product, total economic and services production, but it had risen 10 years later in 1990 to 103.1 per cent of gross domestic product. In other words, the level of debt carried by Japanese financial institutions was in excess of the total value of the Japanese economy by 1990. The great problem with this was that it was secured, in large part, by land and property values in Japan. Of course, the increasing value of property in Japan—which at times ran at 20, 30, 40 or 50 per cent per annum—was, for many of the financial institutions, the underlying asset that represented security for much of the loans.

When that property value collapsed, a significant number of Japanese financial institutions struggled to survive. I say that they `struggled to survive' because the Japanese concept of bankruptcy is totally different from ours. The Japanese government pumped in billions and billions of yen—billions and billions of Australian dollars; I do not know what the exchange rate was then—to prop up Japanese financial institutions. I cannot think of one Japanese financial institution which was allowed to go broke, even though by any standard accounting measure many of them were bankrupt. That is one of the reasons the Japanese economy has failed to recover. It simply staggered along during the 1990s.

One other issue that I want to touch on is the demographic changes in Japan. This is pointed out as a great opportunity for Australia in terms of exports. Japan is an interesting country. I think it will be the first country in the OECD, the advanced economic world, where the population will actually start declining as a result of low birth rates. That is in fact occurring this year. As I say, it is the first country with a declining population. But what is happening at the same time is a rapid ageing of the population. The report points out the demographic changes that are occurring and the opportunities for the export of Australian services, particularly to the aged care market. One word of caution, however: the Japanese pension system is underwritten by an equal contribution tax from employers and employees. I think it is about 6½ per cent each, totalling 13 per cent. That is simply not sustainable, given Japan's ageing population. The figures I have seen are that it is estimated that, in Japan over the next 20 years, the tax of about 13 per cent that currently funds their pension system will have to double in order to support their rapidly ageing population at current pension benefit levels. I would submit to the Senate that that is unsustainable and that they will not be able to carry that level of taxation and provide current benefits.

In conclusion, as a Tasmanian senator, I want to point out that the Tasmanian apple industry has finally cracked the export market into Japan, after many years of trying. As a Tasmanian, it is great to see that we have finally had what I suppose you could refer to as the `ordination' of Tasmanian apples. They have finally got into the Japanese market after 10 to 15 years of trying. I hope that the Japanese appreciate—

Senator Watson —It is good news.

Senator SHERRY —It is good news, Senator Watson—a Tasmanian colleague. The only part of Australia allowed to export apples to Japan is Tasmania, because of our comprehensive quarantine measures, our fresh and clean produce—I will not use the word `green' as I think it is overused. (Time expired)