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Wednesday, 1 April 1987
Page: 1899

Mr McARTHUR(5.22) —I would like to refer to the future of the Australian economy, to the May mini-Budget, to what the Hawke Government might do, and to what the Howard Government will do, about the long term problems facing the Australian economy. I would like to refer to some of the views of independent business groups as to how they see the economy and what their policies would be to solve our quite massive economic problems. The Australian Chamber of Commerce has put out a publication called `The Mandate to Govern' containing its views on the way it sees the economy moving in the next decade. I would like to quote what is a very good summary of the current position, as contained in its introduction. It states:

A snapshot of the Economy.

From 1982 to the latter half of 1986 the Australian Government has pursued economic strategies designed to maintain or increase economic growth. By 1986 the growth rate achieved in 1984 and 1985 had declined so far as to be negative in some quarters, although renewed growth was expected in 1987. Essentially, economic growth was sustained or augmented by borrowing by the private and public sectors, especially by borrowing from abroad: the combined consumption by public and private sectors has been greater than our national output. Specific features of recent economic policy and conditions have been: A quick spurt of growth in 1983-84 and 1984-85. Public sector outlays of over 43 per cent of GDP. Public Sector Borrowing Requirements averaging 7 per cent of GDP.

Historically high Commonwealth Budget Deficits. A downturn in our terms of trade.

Wage indexation to the CPI (Now abandoned?).

A weakened currency (beginning before the severe downturn in our terms of trade).

Increasingly heavy on-costs in a labour market already burdened by inflexible and out-dated work practices.

A money supply often accommodating to excessive private and public demand.

Inflation and interest rates very much higher than the average of our major trading partners.

Continuing high taxation-increased by more than 11 per cent in the 1985-86 Budget.

State governments increasing spending and borrowing faster than the Commonwealth.

Generally poor private fixed investment.

I support the remarks that the shadow Treasurer, the honourable member for Mackellar (Mr Carlton), made earlier in the debate about the myth of the $9.6 billion deficit in the 1982-83 Budget that the Treasurer (Mr Keating) has so often referred to. I draw the attention of the House to the quite massive accumulated deficits brought about by the Treasurer: In 1983-84, $7.9 billion; in 1984-85, $6.7 billion; in 1985-86, $5.7 billion; and in 1986-87 an estimated $3.5 billion. That is a total of $23.8 billion, which is near enough to $24 billion, of accumulated deficits during the term of the Hawke Labor Government. There is every chance that there will be a blow-out in the current deficit arrangements of another $0.5 billion because of the high cost of our debt commitments.

I turn now to the present high interest rates which are affecting farmers, home owners and small and big businessmen alike. Individual entrepreneurs are quite amazed. They do not understand why interest rates are so high in Australia but they fully understand that they are going broke week by week and month by month as they pay these exorbitant rates. They cannot understand why interest rates in Australia are so high and are rising, whereas interest rates in other countries are low and are falling. To draw a comparison, at the time of the election in December 1984 the Bankcard interest rate was 18 per cent. In March 1987 it was 22 per cent-an increase of 4.5 per cent. The interest rate on savings bank loans, which affects every home owner, was 11.5 per cent in December 1984. It is now 15.5 per cent, an increase of 4 per cent. The prime interest rate on overdrafts was 13.5 per cent in December 1984. Now it is 18.5 per cent, an increase of 5 per cent. In the smaller overdraft area, affecting many of our small businessmen, there has been a movement from 14.5 per cent, which was high enough anyway, to 20.5 per cent-a dramatic increase of 6 per cent. These interest rates are at all time record high levels.

Let us compare the interest rates in other countries. In the United States of America in December 1984 the interest rate was 11 per cent. In March 1987 it was down to 7.5 per cent, a reduction of 4.3 per cent. In Japan, our major trading partner, in December 1985 the interest rate was 5.5 per cent. In Australia we would be very happy to have that low rate of interest. But Japan has reduced its interest rate to 3.4 per cent. No wonder that trading nation is very competitive with us. Canada, one of our competitors in primary products, had an interest rate of 12.5 per cent in December 1985. It was 8.75 per cent in March 1987, a drop of 3.7 per cent. I repeat: In Australia the interest rate was 13.5 per cent in December 1984. It has now risen to 18.5 per cent. So farmers and small businessmen are gradually being strangled to death by the high interest rates caused by Government policy.

I turn to the Confederation of Australian Industry and its view about how to deal with our economic problems. I quote the President of the CAI, Mr Brian Ettelson:

Dealing with our economic problems is about this year's Budget. The time Australia once had on its side has now run out. We either confront our problems head on or, as one Federal Minister has put it, we end up with a `South American hyper-inflation depression disaster'.

Mr Rocher —Who said that?

Mr McARTHUR —The President of the CAI. I am not sure which Federal Minister made the comment, but I am sure that it is correct. The quotation continues:

The May statement must savagely reduce spending and the Budget in total must reduce the fiscal pressure on productive activity. Expenditure cuts, tax cuts and a lower deficit can all be achieved together.

This is what the CAI wants. Its President made that very clear. The CAI's detailed statement went on to list the Budget items where cuts could be made. It recommends that grants to the States should be cut, forcing the States to rein in their own expenditure and control costs, that Loan Council approval to borrow should be withdrawn from State instrumentalities, that there should be an attack on government duplication in a very serious way, that duplication of services between Federal departments and between the Federal Government and the States should be removed. For instance, the National Occupational Health and Safety Commission, which is duplicated in every State, is estimated to spend $17.8 million in the next year. What is achieved by that duplication in the area of health and safety? It recommends that persons on workers compensation should be required to undertake a daily program of rehabilitation, that the whole problem of workers compensation and on-costs should be addressed and that Medicare should be targeted to those who are in financial need and scaled down accordingly. All of us on this side of the House would appreciate the quite massive costs involved in Medicare.

More importantly, the CAI said that there should be no new government initiatives or spending programs and unproductive job creation programs should be scaled down, or better still, abandoned. For instance, the community employment program should be scaled down or abandoned, saving the Government up to $1 billion over a three-year period. The CAI also said that the introduction of the Australia Card should be abandoned, thus saving the costs involved. All honourable members are aware that the card will cost $1 billion over a 10-year period. The CAI also suggested that there be an improvement in public sector efficiency.

I now turn to the Economic Planning Advisory Council. On 27 March the Council endorsed a discussion paper issued by the Business Council of Australia. The Business Council made some very strong recommendations about Australia's economic position. It stated:

Fiscal policy also has a key role to play in the required structural adjustment. Cutting back sharply in public sector spending is necessary to lift our national savings and investment performance in the medium term. It is only through improved investment that we can hope for a lasting correction to our external imbalance.

Key objectives in the next few years must be to:

halve our current account deficit;

lift investment as a proposition of GDP; and

stabilise and begin reducing our overseas debt as a proportion of GDP.

The Economic Planning Advisory Council is an arm of the Government's policy development section. The paper talked about the public sector borrowing requirement and noted the escalation of the debt incurred in the area of government expenditure. In 1981-82, the public sector borrowing requirement represented 3.6 per cent of GDP; by 1982-83, it had escalated to 6.2 per cent of GDP and in 1985-86, it was nearly 5 per cent of GDP. There has been some reduction at the Federal level, but little at the State level. With this increase in the public sector borrowing requirement, there is a need for overseas resources and savings for deficit budgeting by the States and the Commonwealth. It is often overlooked by the Commonwealth and the political electorate in Australia that the States' big spending policies cause the Australian economy considerable problems. Again, the Business Council had this to say:

At the 1986 Premiers' Conference the States agreed to a reduction in their ``global'' borrowing limits (what the States may borrow) from $7 billion to $6.3 billion. That reduction, in combination with the estimated reduction in the Commonwealth Budget deficit was, as noted earlier, expected by the Government to lead to a fall in the total PSBR of about 1.6 per cent of GDP in 1986-87. In fact, the States have brought down Budgets that not only fully utilise their global limits but also draw extensively on their liquid assets. Rather than falling, therefore, the States' deficits (what they actually borrow) are expected to rise in aggregate by around $2 billion in 1986-87, substantially offsetting the reduction in the Commonwealth deficit. As a result, the fall in the PSBR in 1986-87 will be marginal at best.

In the Business Council's view, the States have shown a worrying disregard for Australia's present problems and their role in overcoming these problems.

In 1982, in Victoria, which had had a prudent Liberal government for over 27 years, the public sector debt was about $15 billion. Under the Cain Administration, the figure had moved to about $35 billion in 1986. It is a little difficult to establish the clear figures in that State because of the creative accounting procedures of the Treasurer. No doubt, we can draw that comparison of the indebtedness of that State over that short period. In Victoria, there have been sales of liquid assets and the utilisation of cash reserves. Land sales are being conducted right now to bolster the State Budget. The trams and trains have been leased off to the extent of $350m, creating long term debts.

The National Farmers Federation put a submission to the Prime Minister (Mr Hawke) on 9 December. We well remember that application by the President to the Prime Minister. The application was refused and the Prime Minister refused to take on board any comments by the National Farmers Federation. The farmers identify the economic problems as follows:

Everyone agrees that the major economic difficulties confronting Australia are:

an inflation rate that is far too high;

a persistent and growing current account deficit; and

a massive external debt and debt servicing burden.

Everyone is aware of that. The farming community is very close to those three problems. The farmers suggest that the way in which the problems could be overcome is to:

directly attack inflation by reducing cost pressures;

directly attack unemployment by pricing would-be employees and firms back in business-

that is, having a flexible wages policy, which the Opposition has advocated for some time-

reinforce the demand-switching in benefits of the recent devaluations-

hopefully, the J-curve effect will come into being sooner rather than later-

powerfully work to correct the balance of payment problems by sustaining our international competitiveness;

allow a marked relaxation of monetary policy, in the sense of reducing interest rates without risking a collapse in the value of the $A and a blow-out in credit expansion; and

encourage private sector investment without the limiting impact of currently high interest rates.

The Opposition would restore incentive to the system-that is, incentive to the marginal tax rate so that Australians would be encouraged to work harder. We would restore incentive to a flexible enterprise-based employer-employee relationship in the industrial relations area, based on profitability, productivity and performance. We would restore incentive to the Medicare system-that is, incentive to save some of the massive wastes in the system; incentive applied to individual Australians to look after themselves. Medicare costs about $9 billion and that is a great cost on the Australian taxpayer. We need to encourage incentive for governments, at the Federal, State and local level and to cut back on their expenditures so that we have some hope of reducing interest rates and inflation. The next Howard Government will have the political determination to achieve these objectives and restore some economic sanity to the Australian economy.