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Friday, 23 August 1985
Page: 254

Senator CHANEY (Leader of the Opposition)(9.13) —The Senate this morning has the opportunity to commence debate on the Budget put down in the House of Representatives earlier this week. Debate on this Budget is a little more difficult than usual because the Government has departed from normal practice and, in a sense, has reduced the central importance of the Budget in the economic affairs of the nation. Last night the Leader of the Opposition, Mr Andrew Peacock, correctly described it as half a Budget. It is a bit hard to tell whether this has been done by design or simply bad management. The omission of the taxation aspects of the Budget has probably been caused by the Government's confusion and dis- array in the wake of the disastrous taxation summit. We have seen the extraordinary gyrations in the Government's tax plans and from the statements of Ministers. It is clear that even now some final decisions are yet to be made. It remains the hope of the Opposition that some of the potentially destructive elements in the remnants of the Government's tax package might be cast aside even at this late hour.

Given the Government's hope that a good part of the economic growth that it predicts will be based on increased private sector activity, it is absurd to persist with the introduction of taxes on capital gains and the so-called gains incurred on death, and effectively to load business with additional on-costs through the unprincipled way in which taxes on fringe benefits are to be imposed on employers. The Leader of the Government in the Senate, Senator Button, is one of the many people in Australia who have acknowledged the problems of on-costs for industry. Yet, effectively, the Government is proposing further to add to those costs. That must be damaging to Australian employers, and, hence, to the prospects of employees and further employment.

I will turn to the question of taxation later but for the moment I simply observe that in one sense the Opposition welcomes the fact that the tax proposals do not form part of the Budget. It will be hard for the Government to claim that all its financial measures should be treated as a whole when the Government itself has destroyed the wholeness of the Budget and chosen to introduce its tax proposals as separate measures. It remains a matter of conjecture whether the Government has divided the process in three-into the May statement, the August Budget and the September statement on tax that we have been promised-because of administrative confusion, or whether it has intentionally set out to confuse the issues and to make the process seem less painful.

Before commencing to analyse what I see as the main points of the Budget and the weaknesses of those points, I want to remind the Senate that the significant difficulties facing the Government are largely of the Government's own creation. All of the trumpeting we have heard about the relatively low rate of growth of government expenditure in this Budget cannot hide the fact that the continuing high deficit which underpins our high interest rates and the need for continuing high taxes is the product of the Government's profligacy in its first two Budgets-profligacy which has been maintained, if slightly ameliorated, in this Budget. The result is that after two years of economic growth the Government says the deficit will be $4.9 billion-$5.3 billion if it succeeds in obtaining discounting of wage increases for the devaluation-induced increases in the cost of living. I remind the Senate that the highest Fraser deficit in dollar terms was in the midst of a recession and amounted to $4.5 billion. Labor has a higher money deficit at a time when it trumpets our prosperity.

In each of the first two Hawke Budgets expenditure rose an average of close to 7 per cent in real terms and that massive growth in government expenditure, our public debt and in the cost of servicing that debt are all legacies of the administrative of the world's greatest Treasurer (Mr Keating). The facts are that the take from pay as you earn tax has increased by 29 per cent in just two years; three-quarters of a million Australians will be paying more tax this year because of the movement into higher tax brackets; home buyers are hit with the highest real interest rates in at least 50 years; the national debt has increased by almost $17 billion under Labor and the level of government spending and the deficit this year have been exceeded only twice before in Australia's history and that, of course, was in the previous two Hawke Budgets. Even if the Government succeeds in holding outlays to the reduced level predicted in the Budget the average rate of growth in government expenditure over the three Hawke Budgets will still be more than double that of the seven Fraser Budgets.

Let me now turn to what has been seen as the key factor in whether this Budget has any real chance of success; that is the future of wages following the biggest devaluation of the Australian dollar in 30 years. The Government concedes that it is central to its strategy that it is able to handle the effects of this devaluation. The Treasurer has put the issue clearly in the Budget Speech. He stated:

If the initial and full price effects of the depreciation were to be transmitted to wages via indexation decisions, our cost increases would noticeably exceed those of our major competitors for years to come.

Our competitive edge would be lost.

Our chances of improving our share of local and world markets would be diminished.

We would be throwing away any prospect of sustaining the growth rates required to get unemployment down.

That is why, temporarily, we must modify our normal support for full wage indexation.

Those are not the words of a Liberal, those are the words of the Treasurer. We would accept those words as being an accurate description of Australia's position. What the Treasurer at last said in the Budget is what we have been saying and, indeed, what is self-evident. If there is any common purpose in this Parliament it would be our desire to improve our world market share to sustain economic growth and to see more Australians in employment. What the Treasurer has said very clearly in the Budget Speech is that we will not achieve those common objectives unless there is discounting of wages for the inflation caused by the devaluation.

The words used in the Budget about discounting are not nearly as clear as the words that I have just read from the Treasurer's Budget Speech on the issue which faces Australia. But in questions in this place and in the other place we have been told that full discounting is, in fact, the policy of the Government. That is a very welcome clarification about a point which is not clear in the Budget document itself. But even so there is doubt about what the Government is doing because of a possible early catch-up policy. Senator Walsh's statements over the past two days and the attitude of the Australian Council of Trade Unions, which was reported today, gives very little cause for optimism.

This Budget represents the real test of the prices and incomes accord. We are about to find out whether the accord will permit the necessary flexibility which will enable Australia to reap the benefits of the devaluation. If, as the ACTU asserts, the accord must deliver full cost of living increases, including those which are attributed to the depreciation of the Australian dollar, any advantage in depreciation will be lost and we will head for an inflationary spiral and more unemployment. This is not scare tactics; these are the frightening words from the Opposition; this is utterly consistent with what has been said by Mr Keating on behalf of the Government. Yet this is one of the central uncertainties of this Budget. If the Government is unsuccessful in obtaining the discounting to which it says it is committed, the accord will be shown to be a sham and it will be shown to exist for the benefit of those who have jobs to the detriment of those who do not. It will be shown to be a selfish one-sided agreement which cannot deliver the results which are sought by all shades of politics in this chamber. Of course, it is not just the accord which will be shown to be a sham; so will the Budget be shown to be a sham. The growth concentrated in the private sector which is hoped for is likely to prove ephemeral.

In this speech I want to touch on one other aspect of the devaluation. The Treasurer in this and other statements he has made appeared to be taking the credit for depreciation and for placing Australia in such an excellent position for strong economic growth. It seems to be a matter of pride to members of the Australian Labor Party that the Australian currency has depreciated by about 20 per cent in the course of this year. I want to make it quite clear that as far as the Opposition is concerned there is no kudos in depreciation. The depreciation of the Australian dollar was inevitable and was a result of our deteriorating competitive position, as is reflected in our massive current account deficit-a record $10 billion in the year to June 1985.

I do not believe and the Opposition does not believe that the Treasurer can claim distinction for placing Australia in this situation of potentially improved competitiveness. He can take the blame for the plummeting of the dollar caused by too high wages and a loose money policy deliberately designed to lower interest rates during last year's election campaign. He can take the blame for the massive increase in government expenditure which underpins our high deficits and high taxation. We are in the same situation; we are in the same economic strait-jacket as we have been in for the past decade. Inflexible wages destroy our ability to compete internationally and we have merely a slight change in the setting. We now have a flexible exchange rate that adjusts immediately according to how overseas markets judge our worth. Earlier this year they told us we were not worth very much at all. That is not a matter for which the Treasurer should claim credit. That is not a matter which should be a source of pride for the Government or for Australia; it is an admission of failure. It is a result of failure.

The major factors which emerge from this incomplete Budget all demonstrate weakness in the Government's fundamental approach. There is the belated concession that discounting wage rises for consumer price index changes caused by the devaluation is central to our getting any benefits from devaluation. The recognition is belated; the outcome remains uncertain. Honourable senators in this place will remember the failure of the Leader of the Government in this place, Senator Button, to acknowledge over many periods of questioning in the Senate during the autumn sittings the realities which are now clearly acknowledged in the Budget. In the Budget there is the reduction of the deficit from $6.75 billion to $4.9 billion. We now come to what is probably the most significant psychological success of the Budget. Indeed, that success may in part be because it is probably the only major feature of the Budget which was not leaked. On closer examination it appears a rather doubtful quantity. I will return to that later.

There is a new youth program, so praised in this place by Senator Button over the last few days, which attempts to come to grips with Australia's major social problem-high youth unemployment-but which approaches that problem in a convoluted and, we believe, ineffective way. It will further complicate our economic system. It will add to tax burdens and it will only clumsily deal with the fundamental problem described in the Budget as-I will quote again Mr Keating's words-`the need to explore ways of reducing the costs to employers in engaging young people'. Further, there is much lower growth in government expenditure than there was in the first two Hawke Budgets. The Opposition welcomes that, of course, and I have already referred to that. However, this Budget still leaves Australia with one of the highest levels of government expenditure in its history. It leaves Australia with the the continuing problem of spending more than the Government raises in taxes in a system where taxes are universally regarded as being too high. That problem has not been solved by this Budget. The problem remains under this Budget.

There is continued economic growth, which is forecast at 4.5 per cent, with the private sector taking over from government. That proposition is also welcomed by the Opposition. However, it is a rather problematical proposition, given the recent history of private capital expenditure and the doubts which there must be in the minds of consumers because of the numerous areas of uncertainty of the present Budget. Then there is the continuance of the numerous problems of high marginal tax rates for so many Australians, with another three-quarters of a million taxpayers set to move into higher tax brackets during this financial year.

On Wednesday, the day following the Budget, the following headline appeared in the Australian Financial Review: `Keating Budgets on Hope'. Any examination of the features of the Budget which I have referred to shows that that headline is easily justified. Each of the high profile aspects of the Budget I have mentioned produces areas of doubt and uncertaintly. In fact, the Government has been unable to deliver a firm position on wages. If we turn to its statement on monetary policy, which is the only other means of controlling inflationary pressures, we find the same vagueness. If wages are not discounted, if the Government fails to persuade the ACTU and the Australian Conciliation and Arbitration Commission of the need to discount wages, if the Government cannot hold the line in that vital area, it would need to implement a tight money policy to ensure that inflationary pressures were not permitted to get out of hand. In simple terms, inflationary pressures would be choked off through a contraction in economic activity.

The Government has failed to give an assurance in the Budget that it would use monetary policy as a counter to any breakout in wages. It has failed to reassure lenders and business in general. In the view of the Opposition, this vagueness is directly attributable to the sway of the ACTU over the Government. Quite clearly, in this matter as in others, the Government did not wish to anger the unions by advertising a policy stance that would lead to higher interest rates, a solution that is anathema to big government spenders and damaging in any event to many aspects of Australian life.

So the Government is placed in something of a dilemma. It has at last embraced the possibility of a more sensible approach to a wages policy but, given the risks of the failure of that policy, it is constrained in dealing with the other arm of policy-monetary policy. It is constrained by its relationship with the trade unions. How else could the Government deal with the problem of the restoration of business confidence or prevent further falls in the value of the Australian dollar? The only way remaining was to slash the Budget deficit, thereby reducing the public sector borrowing requirement and, hopefully, relieving pressure on interest rates. All this is done to restore confidence in the Government's ability responsibly to manage the economy, despite having both hands-its wages policy hand and its money supply hand-tied behind its back by the ACTU.

At first blush, the reduction in the deficit appears to be a most commendable effort. There has been a reduction of $1.8 billion from $6.75 billion to $4.9 billion. The Opposition has been urging the Government to reduce the deficit, which is part of the ongoing economic problem of Australia. However, an examination of the deficit figure suggests that all is not quite as it appeared when that $4.9 billion figure was produced on Budget night. For a start, the deficit figure assumes that wages will not be discounted for devaluation price increases. If wages are discounted-that is the Government's objective-the deficit will increase by $350m due to lower taxation receipts. That is, on the Government's measure, there would be a deficit of around $5.3 billion. However, whether the figure is $4.9 billion or $5.3 billion, the figure achieved is an artificial guide to the future financing problems of the Government. That is so because the figure has been lowered artificially by a number of one-off transactions within the Budget.

Because the Reserve Bank had holdings of foreign currency, the dramatic depreciation of the Australian dollar resulted in windfall extra profits of about $800m over last year. That is a very handy addition to government revenue. It is an addition which, of course, makes a reduction of that size in the deficit which is put forward under this Budget. I would have thought that any prudent government would not be budgeting for the same sort of windfall gain next year but, I suppose, given the record of the Government, it may be able to achieve a similar profit next year by driving the dollar down by another 20 per cent. One would hope that a stable dollar would ensure that the item would not be available to the Government in the next Budget. Without that item there would be a significantly higher deficit. There are also one-off sales which bring in about another $200m which, in turn, would produce an even higher deficit. If one takes that into account one finds that the deficit figure potentially-in a sense the structural deficit-would be something in excess of $6 billion. The other distorting factor in the accounts which have been put forward is that the Government's new expenditure programs are for part year only and their full effect will add further to the financing difficulties of the Government in the next financial year.

I think it is important that we make common cause where common cause can be made. The Opposition welcomes the fact that some part of the deficit reduction was achieved by reductions in expenditure indicated by the Forward Estimates, but it was not nearly as great a reduction as was supposedly achieved by the May mini-Budget statement. We can all recall that the Treasurer in the other place and the Minister for Finance in this place brought forward a statement in May which announced cuts of around $1.2 billion off the Forward Estimates for 1985-86. In this Budget new policies increased expenditure by $716m against total savings which increased in the region of $1.2 to $1.4 billion. In other words, between the May statement and the Budget the Government found $0.2 billion more in savings but it added over $700m in new additional expenditure. That leaves a net decrease against the original Forward Estimates of $764m. As we predicted, add-ons have substantially reduced the impact of the Government's May cuts. The full year effect of those add-ons will, in fact, exceed the total of the May savings. In effect, for next year there have not been cuts but increases. Mr Terry McCrann, the business editor of the Age newspaper, put it in this way:

There you have it. By next year Tuesday's new spending proposals will have overwhelmed the cuts of May. Despite the May exercise, government continues to grow.

Continued economic growth is important to this Budget. Indeed, it is vital to this Budget and to its estimates of both expenditure and income. If the growth forecast is wrong, it will affect such diverse elements as social security outlays, tax revenues and, of course, the size of the deficit. Non-farm gross domestic product is estimated to increase by some 5 per cent in real terms while GDP will increase by around 4 1/2 per cent. As I have already said, the improved profitability that prompts increases in output and employment pivots on a reduction in real wages and prevention of the one-off price increase becoming entrenched in the inflation rate. This aspect of the Budget remains uncertain. As of today it is very uncertain, given the apparent intransigence of the ACTU.

The major contributors to growth under the Government's projections are said to be private sector investment and consumption and export growth. Yet private sector investment in plant and equipment has been sluggish with recent figures suggesting a real decline, no doubt due to historically high interest rates and uncertainty about wages and taxation. It is hard to credit the confidence that there will be strength in consumption and fixed business investment. Recent history does not suggest that that is the case.

Other factors leading to uncertainty are the prospects of punitive taxation changes, which will reduce the private sector's profitability, and continued difficulties in the rural sector, which may serve in time to remind the Government of its early good fortune in the breaking of the drought. In the early years of this Government the lift in the rural sector was an important factor in the general recovery. I do not think it is yet clear the extent to which crushing difficulties which face much of the rural sector will impact on the economy generally.

At this stage I do not think I should do more than mention two remaining matters of considerable importance-family taxation and the Government's youth allowance. The aspect of the taxation system which will probably cause most concern to the people of Australia is the likelihood that nearly half a million of them are poised to move from the 30 per cent marginal tax bracket into the 46 per cent bracket, with another quarter of a million or so set to move into the 60 per cent marginal tax bracket. Given the Government's collapse on the shift of part of the taxation burden to indirect tax and the new plateau of Commonwealth expenditure which the Hawke Government has achieved, room for real reform seems limited.

To explain the Opposition's reservations about the Government's assistance for unemployed youth, it is necessary only to refer to the Treasurer's own words. At last we find that the Government has `recognised the need to explore ways of reducing the cost to employers of engaging young people'. It is the first timid admission that, in reality, we are facing a problem, an important element of which is that it is simply unprofitable to employ many untrained, inexperienced young workers. It is this first timid admission that indicates that the Government is aware of the basic problem. We then turn to the Government's solution which is to produce yet another subsidy scheme augmented by yet another approach to a new education and training program.

Of course the Opposition supports the objective of the Government. The Opposition will co-operate in trying to ensure that this major problem is dealt with satisfactorily. But the reality is that the problem will never be solved by more job subsidies. We must face up to the need to explore ways of reducing the cost to employers of engaging young people and the need to explore ways which proceed down paths other than the offering of further wage subsidies to employers. That is bureaucratic; that, of necessity, is limited; that, of necessity, is a further distortion of the labour market and that action will not prove to be as effective as the Opposition believes is required. At the very minimum the Government should be suppporting the sort of experimentation which is now being promoted in Western Australia, under the auspices of the State Industrial Commission, to allow employers to offer work at lower rates. The Government is admitting the case for a training wage but it is acting in a way which will ensure large administrative costs and limited accessibility. The long term costs will be high and the results are unlikely to meet the hopes and expectations that we all have.

It is common ground between the Opposition and the Government that we wish to see high rates of growth and a reduction in unemployment. It is only in this way that we will eradicate the evil of unemployment and the individual and community problems which flow from it. The Opposition believes that Australia needs a different formula to that which is being imposed by this Government and of which this Budget is part. We believe that the Government must show more determination in its pursuit of the benefits of devaluation. It has moved some of the way we have demanded but it still shows little sign of being able to carry its supposed partner in the accord-the trade union movement. It will have to do more to reduce the costly burdens of government which have made it the producer of Australia's three highest spending Budgets. I repeat that there has been much trumpeting of the relatively low rate of growth in government expenditure under this Government, but the Hawke Government, in its three Budgets, has produced Australia's three highest spending Budgets. The Government will have to be prepared to face the reality that we need fundamental changes in many of our institutions, not least in the trade union movement, and in the way the labour market works in Australia.

The Senate had a wonderful reminder of the difficulties in the way of doing that in the pathetic defence of the status quo in the debate on the Mudginberri dispute in the Senate just a few days ago. That debate was a sign of how little this Government has learned. Mudginberri encapsulates so much of what is wrong under this Government. At Mudginberri, a consensual quest for efficiency-a quest which is joined by employer and employee alike-a real opportunity which has been provided to compete in a very competitive world is being snuffed out in defence of a system under which many honourable senators opposite, those former trade union officials and industrial lawyers, have grown fat to the detriment of Australia.

The Opposition has very generously supported the reforms that the Government has made in the financial markets of Australia. We would be just as ready to support similar bravery in the equally essential, indeed more essential, labour markets. We believe that the Government has to face up to the real problems of marginal tax rates and we offer our policies as a means of assisting some pay as you earn taxpayers to achieve a greater measure of tax justice. In our policies we urge that early assistance be given and concentrated on families because they have not fared well in the redistribution processes of tax and social security in recent years.

We urge the Government to follow our policies in the tax area by not imposing new taxes on the business sector at a time when continuing business recovery is essential for the Government to meet its own objectives. The fact is that there are things which can easily be done now by the Government which would significantly improve the prospects of continued economic growth and hence the improvement in the employment situation and the prosperity of all Australians. It is a pity to see a government which has been prepared to be courageous in one narrow area of policy failing in its nerve in so many others. This Budget, or part Budget, is like all others, something of a curate's egg. The pity of it is that so many of the negatives in the Budget are so unnecessary. On behalf of the Opposition, I move:

Leave out all words after `that', insert-

`The Senate condemns the Budget because-

(a) it is only half a Budget which fails to outline any approach to the urgent problem of tax reform and tax relief;

(b) it fails to remove the threat of new taxes on investment and jobs, such as a capital gains tax which will include death duties and gift taxes;

(c) it condemns 750,000 Australians to higher marginal tax brackets during the year;

(d) it fails to remove the fundamental problems facing the Australian economy, particularly high inflation, the lack of international competitiveness and the need for further cuts in government spending;

(e) it fails to provide clear direction on the Government's approach to discounting wage indexation for the effects of depreciation of the dollar,so potentially destroying its employment benefit;

(f) it fails to move towards the deregulation of labour markets required to give all Australians a chance for a job; and

(g) it burdens Australia with the threat of continued high interest rates which hurt not only home buyers but hit business investment and jobs.'

We do not commend the Budget; we have moved this amendment and we ask the Government to make the reforms which are essential for Australia to reach and achieve its potential.