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Wednesday, 9 February 2005
Page: 102

Senator SHERRY (4:07 PM) —Today in the Senate, on behalf of the Labor opposition, I have proposed that the Senate discuss the serious issues of Australia’s current account deficit and foreign debt, which have reached record levels, and the need to develop proactive policies to reverse this increase in external deficit and debt and the associated problem of foreign debt putting upward pressure on Australian interest rates. The current account deficit over the almost nine years of the current Liberal government has almost doubled to $50 billion. The net foreign debt has doubled to some $406 billion. These are very serious figures. The rise in foreign debt levels swamps the reduction in government debt, which has been in large part funded by selling public assets.

The Liberal government, as we saw in question time today, loves to answer anything but the questions that are presented to it. There were three questions about the current account deficit and the level of net foreign debt. The government loves to talk about interest rates and government debt but refuses to answer the questions that were put to it today and on other occasions. We had an example in a response from Senator Hill, who wanted to go back through history—that is natural enough—and refer to the time that the current opposition leader, Kim Beazley, was finance minister in 1995-96, when there was a budget debt—not that Senator Hill was asked about budget debt—of almost $10 billion. I reminded him, via interjection, that we can go back through history to the current Prime Minister’s last year as Treasurer of this country, in 1983, when he left a $22 billion budget deficit and he covered it up. He did not own up until after the election. If people want to talk about Mr Beazley’s history, we will remind this country about the record of the cover-up of the current Prime Minister when he was last Treasurer in respect of budget deficits.

Going back to the current account deficit and net foreign debt: this government loves to talk about its successes but ignores and in fact has been complacent about some areas of our economic record that are very serious indeed. It has failed to introduce any policies to halt and reverse the spiralling external debt, the deficits and the associated national debt. I thought one of the most extraordinary claims today from Senator Hill was about the need for industrial relations reform in the context of a current account deficit. It was an absolute joke. I could not believe that the Leader of the Government in the Senate, Senator Hill, would actually claim that you can reduce imports by industrial relations reform in Australia. What is the linkage? There is none, unless your industrial relations reforms are all about reducing wages in Australia. That would reduce imports. That is the only obvious linkage, if in fact there is one. I found it quite extraordinary that Senator Hill could wander into that little minefield.

Senator McGauran interjecting—

Senator SHERRY —This government has developed a bad habit of blaming everyone and everything but itself. It is a government that loves to take the credit but will not fess up and accept any of the blame when there is something wrong. So we have had this long litany of excuses in respect of national debt and the current account deficit. We have had drought, we have had SARS and we have had port bottlenecks—that is the latest one. Senator McGauran interjected about that earlier. Who gave control of the ports to Mr Corrigan in this country? We have a duopoly operating, thanks to this federal government.

Senator George Campbell —They fixed the waterfront.

Senator SHERRY —They said they fixed the waterfront; they certainly have. We have a duopoly operating, thanks to Senator McGauran and this Liberal-National Party government. What responsibility do you bear for that? You certainly fixed the waterfront. We have a stronger dollar—that is another excuse and, as I mentioned earlier, industrial relations is the latest excuse. They have carried out some industrial relations reforms, but apparently they did not work in respect of the current account deficit and national debt.

This government has enjoyed the benefits of the former Labor government’s improvements in productivity—policies we implemented in the 1980s. I remember the current Prime Minister saying in 1996 that his government had inherited a fundamentally strong and sound economy. But this government has neglected policy in a range of areas—and I know my colleague Senator Lundy will go into this in greater detail—for example, investment in infrastructure. It has been so concerned about flogging off infrastructure and privatising, it has failed to invest in infrastructure. We have got emerging skill shortages. And we had a very good question about trade negotiations from my colleague Senator Cook, the former trade minister.

The government has relied on a bilateral FTA, when its own research shows that that is going to cause the deficit to rise not fall. It has failed to remove the disincentives for people to rejoin the work force. It is strangling—in fact, choking—small business with more red tape and legislation. That is an issue I will talk about on another occasion in respect of so-called superannuation choice. The government will be hearing a lot more about the extra red tape in that area. That is just one example. Now the government is talking about making industrial relations more hardline and inflexible and reducing wages and conditions. That is what it wants to do.

The proposal that Labor has put before the Senate for discussion draws attention to the issue of an increasing foreign debt putting upward pressure on interest rates. I suspect that those opposite who contribute in this debate are going to try and refute that.

Senator Fifield interjecting—

Senator SHERRY —I notice a nod, in fact, from Senator Fifield. I want to go to an authority on this matter: none other than Senator Fifield’s former employer, the current Treasurer, Mr Costello. It was Mr Costello himself, some nine years ago, when he was shadow Treasurer, who claimed that foreign debt—when foreign debt was at half its current level—posed a serious threat to mortgage interest rates. Earlier today I actually read the speech in which Mr Costello made these claims. He cited numerous experts in support of his argument that an increase in foreign debt would put upward pressure on mortgage interest rates. In his speech of some nine years ago, Mr Costello quoted Mr Tom Valentine, who was Dean of Commerce at the University of Western Australia:

Of course the debt has an impact …

That is a reference to the national debt. Mr Valentine went on:

This causes higher mortgage rates.

I’m amazed there is even debate about this issue.

There was a quote from Chris Caton:

It’s quite clear that the current-account deficit at 6 per cent of GDP [gross domestic product] has an impact on long-term rates …

It is now well over six per cent; in fact, I think we now have the highest current account deficit amongst advanced economies in the Western world. The now Treasurer, Mr Costello, quoted Professor McKibbin:

Any country that has a large debt tends to pay a premium over the risk-free range.

You pay an additional premium in terms of interest rates for borrowing moneys from overseas, and Australia does have to borrow substantially from overseas in order to finance its current account debt. Why does it have to do that? Because savings have collapsed in this country. I am not talking about government savings, about which the government sounds like a cracked record: repeat and repeat; I am talking about household savings. Household savings in this country have collapsed under this government and, as a consequence, we need to import foreign capital. Because of our increased exposure on the current account deficit, we obviously have to pay more via interest rates. We have to pay a premium to attract capital into this country because we are competing against many other countries in order to attract that capital. There has been a very poor household savings record under this government. That is another issue it does not want to talk about at all. The level of household savings is collapsing in this country.

We become more and more reliant on foreign savings to finance our external debt and this is putting upward pressure on interest rates. We do know at the moment that mortgage interest payments—the actual money that individuals are paying—are at historically high levels. Yet this Liberal government has continued on with its complacency. It has the gall to attempt to criticise the former Labor government over its responsibilities—and we are talking about almost nine years ago now. This government should be able to justify its own performance—and it cannot in respect of savings and the current account deficit—when it is now approaching nine years in government. I think that this complacent approach by the Treasurer and by the Liberal-National government in general clearly shows a creeping arrogance in its approach and an emerging complacency. It demonstrates that the Treasurer himself and the other members of this government are out of touch with pressures on Australian families.

Not only did I read the speech made some nine years ago by the now Treasurer in which he argued that the current account deficit put upward pressure on interest rates; I also tuned into the telly the other night when he was trying to make the spurious link between industrial relations reform and interest rates. At that press conference on Monday night he claimed that the current standard variable mortgage rate is 6.25 per cent. It is actually 7.05 per cent. I do not think he was deliberately misleading, but it did surprise me that the Treasurer actually did not know this. The Treasurer of this country did not know the variable mortgage rate was not 6.25 per cent and that it is actually 7.05 per cent. It was a pretty serious error. I have got to give the press a touch along—and I do not often do this: they did not highlight the Treasurer’s error. They did highlight the ridiculous argument that industrial relations reform is somehow linked to interest rates, when it is not. This mistake by the Treasurer when referring to the standard variable mortgage rate—

Senator McGauran —Wage rises are not linked to productivity.

Senator SHERRY —That is not right, Senator McGauran.

Senator McGauran —Ask George Campbell about it.

Senator SHERRY —Senator McGauran claims that wage rises are not linked to productivity. That is not right. Substantially they are; it depends on which part of the industrial relations system you are in. For many workers, wage increases in this country are linked to productivity. Senator McGauran is apparently suggesting that we should remove safety net wage increases. They are not totally linked to productivity. What Senator McGauran is suggesting is the Americanisation of the industrial relations system: no movement in minimum wage rates of pay in this country. That is what he is suggesting. We know what is on your agenda. That is inevitably what you would do to lower paid wage earners. You would reduce their wages in real terms over time by removing that safety net provision, and that would reduce imports. Clearly, if your real wages are reduced, you cannot purchase as much, because consumption has declined, and you obviously would not be purchasing imported goods. This government has been complacent. It has been arrogant. It has wasted opportunities. It has ignored fundamental policy reform in a number of areas other than those that suit its own ideological prejudice and propaganda.