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Wednesday, 9 February 2005
Page: 105

Senator FIFIELD (4:22 PM) —What is so telling here is not what Senator Sherry has said but what he has not said. Why is it that every time Labor come in to talk about the economy they do not want to talk about net government debt? They want to talk about foreign debt and the current account deficit. They want to deny the link between them. It is always the same story. And it is odd, because there is a direct relationship between the two. One almost gets the feeling, as Senator Sherry leaves the chamber, that Labor have something to hide, that they are uncomfortable talking about net government debt. The reason is: they are. It is instructive, I think, to look at the relationship between net foreign debt and net government debt to see why Labor are so shy.

When the coalition came to government, we inherited a net government debt of $96 billion. It is a figure the Labor Party have never liked to hear and do not want to hear today. We have reduced net debt from $96 billion, 19 per cent of GDP, to $25 billion, three per cent of GDP. That is a reduction from $5,200 to around $1,200 per person. As a government we are living within our means. We can afford to do the things that we want to do for the Australian people without borrowing. Since we have been in office we have not borrowed one dollar in net terms.

We enjoy the lowest level of general government net debt in the developed world—lower than Germany, lower than the total OECD, lower than the EU, lower than Japan, lower than the US—and the government is committed to maintaining those low levels of net government debt. We have a much lower level of net government debt than most other developed countries. Our net debt to GDP ratio is amongst the lowest in the OECD. While net debt in most OECD countries is rising as a percentage of GDP, in Australia it is steadily falling.

Why is this important? Why am I talking about net government debt? Because it does have an effect on foreign debt and the current account deficit, for one very simple reason: the more governments borrow domestically, the less money there is to borrow to invest in Australia, meaning that people have to borrow overseas. If Labor were in office, there would be a much higher level of net government debt, which would have an effect on foreign debt. It is clear. We know Labor cannot be trusted with budgets, because we have seen it before. Earlier in this chamber, I was fortunate again to be on my feet on this issue. I referred to my all-time favourite article quoting Kim Beazley, in the Age of 1 February 1996. He said:

“We’re in a position where we’ve got no plans to increase taxes … Why would we? We’re operating in surplus, and our projections are for surpluses in the future.

The reality was a $10 billion debt, so it is absolutely breathtaking that Mr Beazley and his team opposite seek to take this government to task on interest rates and foreign debt. This government know that the best way for any government to take pressure off interest rates is to reduce government debt, which is what we have done. Let us never forget that Kim Beazley left us not only a $10 billion budget deficit but also an annual interest bill of $8 billion when we came into office. That is why senators opposite never want to talk about the other side of the economic equation.

Since 1996 the share of net foreign debt owned by the general government sector has fallen from 17 per cent to under five per cent, and the debt servicing ratio has fallen to around nine per cent. In 1990 under the previous Labor government—the team of which Mr Beazley was an integral part—20 per cent of exports went towards paying the interest on net foreign debt. Australians indicated at the last election that they know who is better at managing the Australian economy.

Those opposite, as always, are talking the economy down, but we have an enviable economy. We have strong growth, high employment, low unemployment, low inflation and low net government debt. There are indeed some economic challenges in this environment, associated with capacity constraints. There is one very simple solution to capacity constraints, skill shortages and inflationary pressure; we could always follow the Labor approach and kill the economy, as they did in the 1980s. A simple Labor solution to a skill shortage is to pursue policies that drive unemployment higher. An easy way to solve a skill shortage is to kill the economy—no skill shortage then. A simple Labor solution to capacity constraints is to pursue policies that squash demand and dampen business investment.

The government could pursue recessionary policies. Only today, Don Russell, former chief of staff to Paul Keating, has an article in the Age with the headline ‘Why we had to have that recession’. He tells us:

Far from enjoying the prosperity of the past decade, we would have spent the 1990s dealing with high inflation and high interest rates. In 1989, time was ticking and interest rates were the only way to avoid the otherwise inevitable disaster.

Too bad for those people who lost their jobs; it was just inevitable! He is not backing away at all from those policies of the 1980s. The truth is Labor only ever have one policy to lower inflation, to lower interest rates and to solve skill shortages, and that is to kill the economy. It is what they know, it is what they do well and it is what they do best. But we are determined to continue to pursue policies that will ensure that we have a strong economy and that will also keep inflationary pressures in check.

There are some practical things that we can do to improve Australia’s export performance. Addressing infrastructure constraints in our ports is one, as the Treasurer has noted. There is strong demand overseas for our commodity exports which is not being met by Australian companies because of bottlenecks in our ports, particularly in northern New South Wales and Queensland. So there are things that we can do there, and the Treasurer will be seeking the assistance of the relevant state authorities. Senator Sherry could certainly help by talking to his state Labor counterparts.

Senator Sherry has proposed that the federal government acknowledge that rising foreign debt puts upward pressure on interest rates. He also suggested that the government needs to adopt what he calls a proactive approach to policy. On matters of monetary policy and foreign debt, I am inclined to defer to the judgment of the Reserve Bank rather than Senator Sherry. The Reserve Bank say that the current account deficit is not and should not be an objective for monetary policy.

The Deputy Governor of the Reserve Bank, Glenn Stevens, on 14 December 2004 gave an address in Sydney in which he raised the issue of the impact of foreign debt and the current account deficit on interest rates. He said, ‘The current account deficit is clearly not something to be addressed by monetary policy.’ He even went so far as to say:

Actually, whether the current account position should be an objective of any policy is not obvious—that would need to be argued. But whatever one’s view on that question, let me be clear that the current account is not, and should not be, an objective for monetary policy.

Mr Stevens did not stop there. He said:

We have had that debate in Australia. It was settled more than a decade ago, and I do not wish to re-open it.

If Senator Sherry were here, I am sure he would say, ‘But I have never said that.’ But in October 1990, Senator Sherry said:

The overriding objective of macroeconomic policy is to reduce the current account deficit to a level which stabilises Australia’s net foreign debt. In pursuing this objective the government has employed a comprehensive range of policies aimed at slowing demand growth to sustainable levels.

I actually think that the overriding objective of macroeconomic policy is to create a strong economy that provides jobs for Australians. So it is an interesting idea of what the purpose of a strong macroeconomic policy is. Senator Sherry might like to take on the Reserve Bank in reopening this debate—good luck to him if he does.

Earlier in the Senate, I referred to Mr Beazley, the Leader of the Opposition, who said, ‘We have always been a country that has been heavily dependent on foreign capital. Get clearly in your head: foreign capital does not chase badly managed economies.’ Kim Beazley said that in 1995. Fine, if you reject what Kim Beazley says, that is okay. Senator Sherry said, ‘Debt is not a bad thing as long as you can support the debt.’ If you want to discount Senator Sherry then that is fine.

So where does that leave us? It actually leaves us with an economy that is strong and with low unemployment. There are economic challenges but all Labor are doing here is running an old-fashioned interest rate scare campaign. I would have thought that from the last election you would have realised that the Australian people do not respond to your scare campaign on interest rates. They respond to facts and they rejected you.