Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard   

Previous Fragment    Next Fragment
Thursday, 9 June 1994
Page: 1644

Senator GIBSON (4.40 p.m.) —I rise to speak in the second reading debate on the Appropriation (Parliamentary Departments) Bill 1994-95 and related bills. I want to take the opportunity to comment on the government's budget and its running of the economy. This latest budget is a budget of missed opportunity. Who is likely to miss out? The people who are likely to miss out are the underclass in Australia. What do I mean by the underclass? Essentially, they are the about one million—or a little less now—unemployed and almost one million underemployed. So it is a very large proportion of the Australian community which is the underclass—and has been for the last two or three years.

  The government attempted to address the problems of that underclass with its green and white papers on unemployment. But the programs that have come out of that white paper do very little for real jobs. What those programs are all about is trying to make unemployment palatable for the rest of the community. They are really bandaids, trying to cover over the real problems. They have done very little to encourage long-term sustained growth in the economy.

  Even the government acknowledges that it is really only through strong economic growth that we will get sustained growth in jobs in Australia. The government does not even believe its own rhetoric that it has put out in the green and white papers. I will illustrate. In the green paper, which is the first paper it put out, it stressed the idea of economic growth encouraging growth in employment and, hence, reductions in unemployment. It canvassed two options for economic growth. The first option was at a growth rate between now and the rest of this decade of 3 1/2 per cent per annum. That would lead to a seven per cent rate of unemployment by the year 2000. That was the low growth option. The high growth option was at 4 3/4per cent per annum. If that was sustained right through to the year 2000, we would end up with an unemployment rate of about five per cent.

  I might add that since this government has been in power, there have been only two years where there have been high growth rates of over five per cent; in 1983 with 5.3 per cent and in 1984 with 5.6 per cent. In spite of what the government said in the green paper and in spite of its rhetoric of adopting an objective of trying to achieve a five per cent target by the year 2000, what do we find in the budget papers? When we look at the budget papers, we find that the growth rate the government is assuming in this budget is 4 1/2 per cent for this coming financial year, 1994-95; 4 1/4 per cent for the following year; then four per cent for the next two years beyond that.

  So already, in the space of just a few months, the government has shot itself in the foot with regard to unemployment and the underclass, basically by saying in its budget papers, `We do not believe the growth projections we optimistically put before the community a little earlier.' It would appear that there is very little chance of achieving its target of five per cent unemployment by the year 2000. Why has the government gone along this route? We have had the evidence from the Secretary to the Treasury that the high unemployment rate was basically a matter of choice. There is no doubt that this government took that low growth-high unemployment path as a matter of deliberate political choice.

  This afternoon I want to canvass two major dimensions of this problem. The first is the government deficit and its relation to the interest rate regime in this country. The second matter I want to talk about is capital efficiency and investment within Australia

leading to long-term sustained jobs. Let us start with the budget deficits. The facts are that this government, by the end of this financial year—in other words, in a few weeks time—will have accumulated deficits at Commonwealth level of $38 billion since 1991-92. The projections in the budget papers indicate that by the end of the year 1996-97, that budget deficit will have grown to $64 billion. I remind the Senate and the community that, to put that into context, the GDP of Australia is somewhat over $400 billion. So we are talking about a very large slice of a year's activity that has been accumulated as debt by the federal government.

  It would not be so bad if these deficits were spent on capital goods. Everyone who has run a household knows that we cannot go on spending more than we earn. But it is still sensible for a household to borrow to invest in capital goods, for instance to buy a house. As long as the interest and repayments are within the cash flow, people can cope with that. But here we have a government which has borrowed nearly $40 billion to date, and intends to borrow up to $64 billion over the next few years in accumulation over this period from 1991-92 through to 1996-97. Most of it will be spent on consumption; only a very small proportion is intended to be invested by the government.

  Let us contrast that with what the Prime Minister (Mr Keating) said in the One Nation statement a little over two years ago, in February 1992, when he bragged that the government would have its budget in surplus by 1994-95. How come there has been a change of objectives from that surplus? I remind honourable senators that that was said at the time the FitzGerald report, commissioned by the government, made a plea for additional savings in Australia, to stop us borrowing more from overseas, and to save more.

  The biggest culprit against savings was the spending—in other words, the deficits—by the federal government. All employer groups, most economic commentators and the coalition this year have been pushing the government to adopt a much faster rate of budget deficit reduction than it has done this year. The coalition suggested to the government that it ought to aim for a budget deficit of below $10 billion. Others were suggesting that it ought to be substantially less than that, given that there was a growth dividend coming out of the economy. The economy has been growing faster than was anticipated.

  More importantly, it was suggested that we aim for surplus within a couple of years. But the government decided to spend up and to marginally reduce the deficit. In fact, the reduction in deficit is sort of hidden by asset sales. So again we are spending what was invested. In household terms, we are spending part of the house rather than reducing our expenditure. The net result of this will be a big impact on interest rates. Those interest rates will affect all Australians. Already the bond rate has gone up substantially—over two per cent. International bond rates have gone up, particularly as the American authorities took action to try to kill off any expectation of inflation.

  In Australia the commentators are accusing the government of deliberately holding down short-term rates against the judgment of the market. Last week and this week we have had Syntec, Westpac and National Mutual making predictions that interest rates will go up between three and five per cent over the next year or so, which will impact on everybody.

  So we have a government which has taken a deliberate route which will again encourage boom and bust. While the economy is running on quite smoothly now, the government has deliberately avoided the hard decisions of cutting expenditure and cutting the deficit, and hence taken the very substantial risk that we will head into boom-bust cycles once again. Who will miss out on this? Again, the underclass, because with each boom-bust cycle we ratchet up the base level of unemployment. The obvious message is that the government should have cut its expenditure and should have had a lower deficit. To illustrate what could have been done, it is important for the community to understand that real government expenditure by the federal government has increased by over 16 per cent—after allowing for inflation—over the last four years, including this current year, and is predicted to increase further by at least 3.1 per cent next financial year, even taking into account the sale of assets.

  So we have had a real increase in expenditure by the federal government of over 20 per cent over a five-year period when the rest of Australians, be they state governments, government businesses or, more importantly, the 70 per cent of the community working in the private sector, have had to tighten their belts. What have we had here? We have had increased expenditure. So there is room for manoeuvring. Again, I stress that the message is that the deficit should have been lower, hence there would have been less risk of higher interest rates and less risk of a boom-bust cycle with the inevitable consequence for the underclass—the unemployed and the underemployed in Australia.

  I move on to the second major topic with regard to the management of the economy, and that is capital efficiency and investment in Australia. I have said in this chamber many times that the investment in Australia of recent times is at its lowest level since World War II. Part of that investment, which is plant and equipment, has been running at around six per cent of GDP for nearly three years now. I stress that that is the lowest level since World War II.

  We are all concerned as to why investment has not taken off here in Australia. Even with the economy growing quite well, how come there is no investment? One major reason why investment is not taking off yet has been put forward by Professor Helen Hughes. It is a very important point. Her point is that capital in Australia is being used only about 25 per cent of the time. In other words, on average, a lot of the equipment—the factories, the offices, the computers, the trucks, the rail cars, the ships—is being used only about 25 per cent of the time. Only a minority of businesses and activities in this country work full time—that is, 24 hours a day, seven days a week—largely characterised by the mining industry and some manufacturing industry, including the paper industry from which I came. As a general rule, there is very little double time and triple time working right around the clock in Australia.

  Why is this the case? The largest problem is penalty rates. Penalty rates in awards stop businesses from using existing capital efficiently. In the past, the tariff protection made it worthwhile still investing. But now with international competition, as we have wound down protection and continue to wind down protection, which is the right thing to do, people can invest anywhere. Hence, investors are looking to invest not here in Australia where it is difficult to make a dollar because of this problem, but offshore.

  We have only to look at examples all around us to see industries that do not work long hours. Take the construction industry, for instance; it is basically characterised in Australia as day shift only. Contrast that with our Asian neighbours just up the road. The blame for this waste of capital should really be laid at the feet of the unions and the ACTU. We will go on wasting capital in Australia unless we do something to break the nexus and encourage people to work.

  We must free up the labour market. It is the critical decision that needs to be made. That can happen. In current circumstances large firms with sophisticated management understand the need to go through the complications of enterprise bargaining, as put up by the Brereton act. It is the small firms which characterise most of Australia that are in difficulty and do not want to go into those complications. They are the ones who are being penalised. They are the ones who foresee these penalty rates as stopping them expanding their businesses. That great amount of underutilised capital is a principal reason why we have not seen a boom in new investment, which we should have expected if this lift out of the recession had been typical of other recessions.

  The net impact of this is again borne by the underclass—the unemployed and the underemployed. What do we have to do? We have to free up the labor market, free up the use of that existing bank of capital in Australia and encourage new investments. A few of these things are directly under government control. Ports and railways can be freed up by lowering the costs of government services. A report last week stated that the Port of Melbourne is now the second most expensive port in the world. There is a lot that can be done.

  I think Australia can and will respond if given the opportunity. We have a huge consumer market to our north—two billion people, of which about 300 million today are on middle to high incomes. We can supply into such markets and work with them, but we have to remove the restrictions and allow Australians to get on with doing a good job and having high economic growth for our kids and their kids.