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Wednesday, 9 February 2005
Page: 110

Senator CHAPMAN (4:42 PM) —If what we have heard so far in this debate on the part of the Labor Party, who brought forward this matter of public importance today, and indeed what we heard earlier today in question time, reflects their electorally-driven, new-found interest in the economy, then they certainly have a long way to go. Over the summer break, we all read about Labor’s introspective navel gazing in the face of their leadership woes and the policy vacuum that contributed to their well-deserved, massive electoral defeat at last October’s election.

Following nine years of policy laziness, some opposite have apparently realised the truth of the old axiom, ‘It’s the economy, stupid’. However, it is going to take more than that realisation and recognition on the part of a few opposite for Labor to establish any credibility whatsoever with regard to economic matters. Trying to create an issue on false premises and harping on about it, as they did earlier today in question time and now in this debate, will certainly not establish any economic credibility whatsoever as far as the Labor Party is concerned. Their economic analysis of this issue is fatally flawed and, as has been the case for the last nine years, they offer no alternative, more beneficial policy to the issues they have been harping about.

The important thing to understand about the issue of the current account deficit is that it is essentially a function of the stage of our economic cycle. The fact is that, almost entirely as a result of the sound economic management that has been in place on the part of the Howard government over the last nine years, we have enjoyed strong domestic growth in our economy at a time when growth in the rest of the world has been much slower. Added to this factor is the situation of the declining value of the American dollar, which has had the reverse effect: the appreciation of the Australian dollar, which is up by 20 per cent over the two years to December last year. Of course, the devastating effects of drought over the past couple of years have had a substantially detrimental impact on the export earnings of Australia, and that continues to have residual effects. In addition to that, we had the issue of SARS and other factors which have affected Australia’s export earnings.

So this is, as I say, a consequence of the stage of our economic cycle combined with other extraneous events such as drought and the state of the American dollar and its impact on the Australian dollar. This was quite clearly spelt out by the International Monetary Fund when it said:

That external current account deficit has widened, mainly reflecting the sharp appreciation of the Australian dollar and the relatively strong cyclical position of the economy.

So, again, factors beyond the control of the current government have affected the level of the current account deficit. But do not just rely on what I am saying about this; let us have a look at what some of the experts in the economic field have said about this issue. This is in marked contrast to the performance of those opposite, who showed during their period in government that they knew absolutely nothing about the economy and sound economic management.

The OECD in its recent report—a report, I might say, that was warmly endorsed by the Labor opposition—said on the causal factors with regard to the current account deficit:

The desynchronisation of the Australian and global economic cycles, effective exchange rate appreciation and the drought-effect on rural exports led to a substantial widening of the current external deficit during the past three years.

That was the OECD reinforcing the points I made a moment or two ago as to the external factors that have contributed to this situation. On whether this is a matter for concern, the OECD says that current account deficits are not a cause for great alarm in countries with floating exchange rates and adds:

Moreover, when assessing the Australian situation, it has to be kept in mind that, with general government finances in surplus for seven years in a row—

again, something in marked contrast to all those years of Labor government deficits—

Australia’s current account reflects private saving and investment decisions. And with structural reform having stripped out many distortions from the economy—

structural reform initiated by the Howard government—the labour market reform, which has not gone far enough because of the opposition of the Labor Party and the minor parties in this chamber to much needed further workplace relations reform—

private sector saving and investment decisions are likely to be efficient, with capital flows reflecting informed decisions about relative investment opportunities.

On the risk of excessive foreign exchange exposure, the OECD says:

When taking on-balance sheet and off-balance sheet exposures together, Australian banks’ foreign currency exposure remains at low levels. Accordingly, the Australian economy as a whole, as well as individual sectors, do not seem to have important foreign exchange exposure.

On our ability to handle the current account position, the OECD says:

.... the banking system, which accounts for about 80 per cent of Australia’s net foreign debt, is in good shape. This is reflected in Australia’s Aaa and AAA foreign currency ratings, respectively, by the Moody’s and Standard & Poor’s rating agencies. The financial positions of firms and households are also sound. The general government’s share in net external debt is only about 5 per cent. Australian Government total net debt is very low, around 3 per cent of GDP in 2003-04, which is one of the lowest levels of general government net debt in the OECD. This places Australia in a comparatively better position than most other countries to respond to future economic shocks.

And why do we have that low level of government debt? Again, because of the sound financial management of the Howard government, running budget surpluses of several billion dollars for the time that we have been in government and paying off that massive inherited government debt from the Labor Party’s time in government—$90 billion to $100 billion of debt now down to $20-odd billion of debt. It has been an astounding performance by this government in reducing government debt.

Senator Lundy —That’s really all you’ve got to say, isn’t it?

Senator CHAPMAN —As I said, the current account deficit is private sector debt, which is debt that is going into investment—which you would simply not understand, Senator Lundy, and nor would your colleagues in the Labor Party. The management of this government in relation to the economy is sound. Labor’s alternative approach, as we saw in government, would worsen the situation. This government’s position is entirely credible.