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Tuesday, 17 February 1987
Page: 190

Dr HARRY EDWARDS(8.57) —I am ordinarily delighted to follow the honourable member for Stirling (Mr Ronald Edwards), who usually speaks in a calm and well reasoned way, albeit often in grievous error. I must say though that in the latter part of his speech one would think that he was speaking from a position of rock-like solidity and unity over there, although what we have just had, in terms of new ministerial appointments and changes in the other place, is the outcome of the protracted bargaining of the institutionalised factions on that side of the House. It reaches a peak of irony when he says: `We are willing over here to stand on our record; we have got our policies'. What record? I hope that the Australian people are listening.

We have in this country a situation of quite dire straits. We have a desperate situation, one of real peril where we have a balance of payments deficit at an all time high level. We have a relentless progress to an overseas debt of the order of $100 billion with all its implications. Who brought it about? It was $30 billion when the Hawke Government came to power and it is now on course for $100 billion, with all that implies for what it will impose on our children and future generations. Associated with it we have a falling dollar, inflation in the range of 10 to 12 per cent and interest rates-pick up any issue of the Economist-seven to 10 percentage points higher here than practically anywhere else. It might be salutary for people on that side to do a few calculations sometime as to what that incidence of seven to 10 percentage points means in terms of additional costs for every man, woman and child in Australia, particularly for the young people of Australia who when buying a house work most of the working week just to pay the interest on the house they are endeavouring to buy. That is the sort of situation we have. We have a high level of unemployment with 25 per cent of our young people not in jobs. As my colleague the honourable member for Mitchell (Mr Cadman) emphasised earlier, probably one-third of farmers, a particular area of small business, are about to go broke. Is that the record the Government is talking about, that it is willing to stand on?

Mr Webster —It is a disaster.

Dr HARRY EDWARDS —It is a total disaster for this country. Whatever the Government might see as difficulties for this side, there is a determination to carry things through this year, to remove the Government from that side of the House and to restore the situation in Australia. I am not suggesting, incidentally, that there is any instant or overnight solution. It will be a long haul but we have to get the settings in place.

This debate is about the Commonwealth Guarantees (Charges) Bill and the consequential Australian Industry Development Corporation Amendment Bill. The Commonwealth Guarantees (Charges) Bill imposes a charge where any government guaranteed loan is involved and has a particular impact on the Australian Industry Development Corporation. That organisation is given the option of invoking a government guarantee. If it does so, a charge of 0.5 per cent will apply. If it does not choose to involve a government guarantee, the charge will not apply. The first thing to be said about this is that it is just another tax gathering exercise, another tax gathering initiative, and the ultimate effect will be to raise some prices somewhere for ordinary Australians.

The second thing to be said is that in terms of its impact on the AIDC, by and large the most likely effect of the legislation will be that the AIDC will pay marginally more for its borrowings either because of a higher risk rating without the guarantee, or by paying the charge. It could be said that if that happens the Corporation will be placed on a more equal footing with competitors, which the Opposition basically supports. But one is bound to say at the same time that it seems rather unlikely that the Government would not honour financial obligations of the AIDC if the AIDC did get into trouble; so the AIDC could substantially retain its advantage in a sort of de facto way.

To say that is to underline the question that has been raised in the context of this debate as to why the AIDC should continue to be a government owned financial institution-a development bank, or perhaps it is described more accurately as a merchant bank. In these days of widespread deregulation of financial systems throughout the world and the enormous variety of financial institutions that have developed since the AIDC was established in 1971, it is a good question why this Government ownership continues at all.

What I have just said about the development of financial institutions underlines the absurdity of the claim by the honourable member for Calwell (Dr Theophanous) earlier in this debate that the consequence of such a change, of the Government divesting itself of the AIDC, would be `a disaster', or `a massive increase in unemployment in manufacturing'. That is absolute rot. I have no doubt that the actual job that the AIDC is doing today could be and would be done, and more cheaply, if it were left to the private sector.

Mr Webster —Of course it would.

Dr HARRY EDWARDS —Of course it would, as my colleague said. That is not just ideology; it is supported by the weight of evidence when we look at many such activities. The word `privatisation' has been thrown around, but we are not interested in that or like words; we are interested only in the most efficient way of getting certain activities done. I remark in passing that we would not be taking up the time of the Parliament now with a debate on this Bill if it were not in itself an example of the sort of complications we can face when we have, in effect, government enterprise doing a job which is properly the role of the private sector. We have to look at this aspect of the matter and the impact of the Commonwealth Guarantees (Charges) Bill on the AIDC and sort it out so that it can continue its role.

The hour is late but I intend to go back a little into the history of the emergence of this institution. It was brought into being basically as one element in a policy of encouraging borrowing instead of relying too much on direct foreign investment. It was one element in a policy of promoting the assembling with a significant Australian initiative and participation, of funds to finance major development projects. It was almost superfluous even at the time it was introduced because the Australian Resources Development Bank in the private sector had been set up for that purpose. This was all in a context of widespread concern about the extent of overseas ownership and control of Australian industry and resources. With the less fluid and less developed financial system and the international financial system at that time, the AIDC achieved some success along with the private sector institution, the Australian Resources Development Bank.

In the position Australia is in today we have almost the opposite requirement. Loan borrowings with the associated fixed interest obligations have burgeoned-I was saying a moment ago just how they have burgeoned. What is now important is the encouragement of long term direct investment, including perhaps some recycling of existing debts as direct investment. The Government should do that. We will certainly do it on return to government, by the removal of all remaining foreign investment controls, except for certain limited and clearly defined strategically important areas. If we did have some sort of balance of payments problem coupled with a concern at the extent of overseas ownership and control in the economy in those days of the latter 1960s preceding the setting up of the AIDC in 1971, what a problem we have today! If we had a problem then, what sort of a problem do we have today after four years of the Hawke Labor Government? What we have had is a deficit in the balance of payments of $11 billion in 1984-85, $13.7 billion in 1985-86 and currently we are on course for at least the same order of deficit, about $14 billion for 1986-87. We heard the figure yesterday for the deficit in the balance of payments for January-that is, the excess of what we have to pay overseas as compared with what we earn overseas. What we have to pay overseas includes very substantial sums for interest on those borrowings. The figure for the month of January we heard yesterday was $1,290m-nearly $1.3 billion. So when I say we are on course for another $14 billion we only have to multiply that by 12 and we can see where the $14 billion is. There is in excess of the order of $1 billion a month on average. That is worth thinking about; that is about $40m a day which is the measure of the extent to which as a nation we are going into hock. It is $40m more today than it was yesterday. The relentless impact of this building up of the overseas debt, which is on course for $100m, which is Third World stuff, is to put an enormous first charge on export earnings and a great burden on future generations. This country is living very much beyond its means, like an individual with an income of $300 but spending $350 per week. He has to borrow and keep on borrowing. The currency eventually becomes suspect and is devalued. We have listened to the Treasurer (Mr Keating) talking as if the currency being devalued was a considered measure of economic policy. It was visited upon us by overseas countries because of the situation we got ourselves into. That is the truth of the matter.

Mr Barry Jones —Don't you think the dollar was overvalued?

Dr HARRY EDWARDS —I do not know about that. The Government floated it and immediately after there was a bit of a devaluation. Then it came back and stayed for quite a while at the level it was when it was floated. The Minister can form his own opinion from that. That is what has been visited upon us and if the situation continues a further devaluation will be visited upon us. That would then have its impact upon inflation. Inflation in the December quarter was 2.9 per cent, which can be annualised in the order of 10 to 12 per cent. In the United States of America the inflation rate is one per cent to 2 per cent and in Japan and Germany it is practically zero. Yet those are the countries against which we are supposed to do better in terms of costs and inflation, in order to work ourselves out of this situation.

The honourable member for Stirling (Mr Ronald Edwards) talked about the Government's record. I think he ought to be pretty quiet about that record. He should be quietly beavering away doing something about it, but I would not tend to publicise it too much. I raise the question of the extent of our balance of payments difficulties and the effect of overseas ownership and control. We are in hock and, like any borrower in hock, we have to dance to the tune of those who finance the difference.

Mr Webster —It is a pretty high dance.

Dr HARRY EDWARDS —It is a pretty difficult dance, but if we were to be cut off-of course, we will keep interest rates up where they are in an attempt to avoid this-from major sources of international credit, we would have the trend really to become a banana republic with further devaluation, inflation and so on. It is a desperate situation which the Australian economy finds itself in. There has been a bit of a false dawn, with some reasonably favourable figures in December, but do not let us lose sight of the real situation. So we spend our time debating this Bill to impose charges, to increase taxes, prices and the consumer price index a bit more! I admit that the amount is not massive. I will conclude by looking at the AIDC itself.

When one looks at the range of the present activities of the AIDC, as distinct from those sorts of activities which I set out to put in a historical context, one sees that it is financing shopping centres as well as a lot of industry development in, thankfully, high technology ventures. But there is not very much of what it is doing which could be construed as arising from some sort of social purpose which a government-owned body must do. In point of fact, there is a strong case for disposing of the AIDC to the private sector.