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Thursday, 27 November 1986
Page: 3883

Mr HOWARD (Leader of the Opposition)(3.00) —During Question Time today the Parliament was treated to a homily on interest rates from the Treasurer (Mr Keating), but significantly that homily was not really directed at the Opposition. That homily was directed by the Treasurer at his own Prime Minister (Mr Hawke), because it is a matter of notoriety in the economic debate in Australia at present that there is a gaping void between the populist passions of the Prime Minister on interest rates and the rather more economically realistic approach that the Treasurer is taking with the economic albatross that he has to carry around his neck in the form of the Government's Budget and wages policy.

An interesting thing about this Government is that whenever the Treasurer or the Prime Minister goes overseas leaving one or the other behind they always get into an argument about the direction of economic policy. The infamous and irresponsible banana republic statement was made while the Prime Minister was in China and the stupid populist promises of the Prime Minister on interest rates were made in this Parliament last week whilst the Treasurer was in Japan. No amount of bobbing, weaving, ducking or duckshoving can alter the fact that the Prime Minister is desperate to see a fall in interest rates. But the Treasurer knows that if interest rates are brought down now without changing the balance of Budget and wages policy enormous and immediate pressure will be put on Australia's exchange rate. The Prime Minister is the person who needs to listen to that homily, and the Prime Minister is the person who needs to be condemned.

As this is likely to be the last significant economic debate of the parliamentary year, I would like to address my remarks to three fundamental flaws in what the Government has been saying about economic policy in Australia over the last six months. The Government has essentially been saying three things. It has been saying, first of all, that all of our problems, or the great bulk of them, are due to externally imposed constraints via a reduction in our terms of trade that this country has never before had to grapple with. The Treasurer repeated that argument in Question Time today. The great pity is that he really does believe-and some of his followers also believe-some of the nonsense he peddles about the terms of trade.

It is simply not true for the Treasurer to run around arguing that we have had a decline in our terms of trade the like of which has never before been experienced. Today he repeated it. He said that the falls in the 1970s were nowhere near what they have been over the last 18 months. I remind the Treasurer that in the June quarter of 1971 there was a 14.5 per cent decline in the terms of trade. I remind him that the terms of trade fell by 11 per cent in the March quarter of 1975. I remind him that they fell by 13.6 per cent to the December quarter of 1977, right in the middle of the seven-year term of the Fraser Government. In fact, that fall exceeded the fall in the terms of trade of 13.3 per cent to the June quarter of 1986. So for the Treasurer to run around saying that poor little Paul has had to put up with a fall in the terms of trade that no other Treasurer in this country has had to grapple with is simply not true.

The second part of the disinformation he spreads about the terms of trade is that all of a sudden this situation was sprung upon us; that everything was going marvellously until about May of this year, then, all of a sudden, out of the night came these disastrous unprecedented terms of trade. He knows better than anybody else in the Parliament that his own Department warned him and the nation in the Budget Papers accompanying the 1985 Budget. He also knows that his Government, his Department and the Minister for Employment and Industrial Relations (Mr Willis) wilfully misled the Australian Conciliation and Arbitration Commission in the national wage case in March this year when dealing with superannuation, when this Government went to the Arbitration Commission, knowing of our disastrous terms of trade, and said that the national economy could afford the superannuation increase that it, then in cahoots with its mates in the union movement, was going to impose on the economy and the nation. Yet he has the gall to come into this Parliament and say to us: `We did not know it was coming; it is worse than anybody else has had, and please forgive us and excuse us for any of the problems we are experiencing at present'. So much therefore for the great canard of the Treasurer that the situation is all due to this unprecedented, externally imposed problem.

The second great weakness of the Government's argument of the last six months lies in its saying: `We have had a bit of a problem, but all of the adjustments have been made. Nothing more has to be done. It is all starting to work. Sit back and relax and everything will start to turn around in the first six months of next year'. We say on this side of the House that not only were the adjustments made too late, but they were too little. The adjustments have not been adequate, and the reason why we talk about interest rates is that we in this country are being burdened by an intolerably high level of interest rates. The farming sector is being destroyed by debt at present. The Minister for Housing and Construction (Mr West) has talked about home loans. Does he have any idea of the interest rate burden of single income families in this country trying to raise two or three children on $18,000 a year? Does he have any idea of what interest rates are doing to families in seats such as Barton, Dunkley, Chisholm and all of those other marginal Labor seats? I can tell him that the honourable members for those seats have some idea of what is happening. But the reason we are suffering these high interest rates is that the Government's action was too little and it was too late.

All of the adjustments have not been made. The Government faces an horrendous Budget problem next year. It did not exercise real restraint. The Treasurer runs around talking about leather and whips. I saw him on television this morning talking about all the discipline he has exercised. He is the biggest spending Treasurer that this country has seen; yet he talks about discipline. The reality is that he faces an horrendous Budget problem next year, and there are four reasons for this. Firstly, there is the full year cost of the tax cuts; secondly, he will not have the freakish profit of $2.6 billion from the Reserve Bank of Australia; thirdly, there will be a sharp decline in crude oil revenue in 1986-87; and finally, most of the so-called spending cuts that were made in the Budget this year were in fact deferrals to next year of programs or of the commencement of programs such as the poverty traps changes. So to suggest that all of the adjustments on the Budget front have been made against that background is an absolute nonsense.

The final weakness in the basic economic argument of the Government is the argument that all that is needed to stimulate investment and activity in Australia's manufacturing sector is to have a massive depreciation, and that the price advantage conferred by that depreciation is enough to get people investing. The Treasurer is right when he says that a massive depreciation confers an enormous price advantage, but he is absolutely wrong when he implies that that is enough-and that is the point of our matter of public importance today. What gets people investing in manufacturing is not just the price advantage; it is also the after tax return on investment. It is what one gets for the dollar that one has invested, and all the price advantage in the world conferred by depreciation will not get people investing afresh in manufacturing in this country, either in exports or in import replacement, unless there is a decent after tax return on investment. The sad fact is that after tax returns on investment in Australia are abysmally low. They are lower now than they were during most of the Fraser years. They are dramatically lower than they were in the late 1970s. Until that is faced by the Treasurer and recognised by the Government they will not get people to invest.

If Labor members do not believe me, I invite them to look at what Charlie Fitzgibbon said on this subject. Before they impugn the patriotism of businessmen who call things as they are and do not echo the faithful propaganda handouts of the Labor Party, I ask them to look at what Charlie Fitzgibbon said. He said: `In the present investment climate, you would be crazy to put your money in anything other than Commonwealth bonds'. That is not a Liberal Party man speaking. That is the former vice-president of the Australian Council of Trade Unions. The reason why we have a poor investment climate is that our interest rates are too high; we are now suffering the highest real interest rates that we have experienced since the Great Depression. The level of interest rates is destroying and ravaging the rural sector. While interest rates overseas have gone down over the last few years, in Australia they have gone up. The interest rate on a savings bank loan has gone up 4 per cent over the last two years while the Bankcard interest rate has increased by 4.5 per cent. The prime rate of interest has risen by 5 per cent. The small overdraft interest rate has increased by 6 per cent. The 90-day bank bill rate has recorded a rise of 4.4 per cent. The 10-year bond rate is up by almost 0.5 per cent.

The Treasurer is responsible for this. He cannot blame the world; he cannot blame us. He cannot blame anything other than the utter failure of his own policies and the utter failure of the Government to start responding at the beginning of 1985. If the Treasurer and the Prime Minister had argued from day one when the dollar began to fall that we needed a full discounting for the price effects of the depreciation, if they had had a tough Budget instead of a wimpy's Budget in 1985 and if they had done something about long term fiscal reform in 1985, we would not now be being screwed into the ground by the highest interest rates we have had since the Great Depression. We would not have a situation in which people would be unwilling to invest because of high interest rates. I refer to the second limb of the weakness, which was revealed in the national accounts yesterday. The Treasurer tries to draw comfort from the national accounts. Those accounts demonstrate that to achieve the growth forecasts of the Budget we will have to see average growth of 1.5 per cent in each of the next three quarters. That is taking off a base of a decline of 0.5 per cent in economic growth over the last 12 months. I hope that that is achieved for the country's sake, but I do not think the portents indicate it.

The other great problem that inhibits economic growth and recovery is the total failure of the Government's taxation reform package. No matter where one looks on the taxation front, whether in business taxation, family taxation or personal taxation, the Government's so-called tax reform package has been a total failure. I repeat-I know to the Treasurer's embarrassment-that, even if all the so-called reforms he has promised us are brought in and passed next year, the average tax burden of a family with two dependent children will be 20.5 per cent compared with 17.5 per cent in March 1983 when the Hawke Government came to power.

The Treasurer needs to be reminded, now that his taxation tables have been put out, that a person earning $200 a week would need to receive another $4.80 a week in taxation cuts to be in an equivalent position to what that person was in in March 1983-an additional $4.80! Somebody on average weekly earnings would need to receive another $14.60 a week in order to be in the same position as he or she was in March 1983. A person on $600 a week would need to receive $13.60 more weekly in order to be in an equivalent position to his or her position in March 1983. It is no wonder that the Government has been unable to answer our questions about its record over the past few years because, over the last 18 months, we have seen a fundamental failure of economic policy by the Government. Its failure to grapple with the problem early enough-its too little too late action-has meant that we have been burdened with a needlessly high tax regime, a needlessly stifling interest rate regime; and, as a consequence, both those factors have remorselessly stifled economic growth in Australia. We are all paying for it through sharply reduced and diminishing living standards.