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Friday, 23 August 1985
Page: 260


Senator SIDDONS(9.43) —The first thing that has to be said about the Government's Budget is that it is a Budget of which Malcolm Fraser would have been proud. The Liberal Party of Australia has always liked small deficits and a tight money policy. We now have the spectacle of the Australian Labor Party agreeing with it. Effectively in this country we have no Opposition in the true sense of the word; we have the Government and the Liberal Party-the official Opposition-with identical attitudes to the economic management of this country. It is left to the Australian Democrats to put an alternative point of view and I intend to put it right now.

I want to make it clear that when I am talking about deficits I am not talking about our balance of trade. That is a separate and very serious issue, an issue about which I will be talking at some length later. I am talking about deficits which are essentially a measure of the amount of money in circulation in the domestic economy. Of course overseas investors always like a tight money policy; they like low deficits because that makes money scarce and it tends to keep interest rates up. It is significant that the advocates of low deficits and tight money policy tend, by and large, to come from the United States of America. It is interesting that the United States recovery has been fueled by some of the greatest deficits that it has ever seen. The advocates of a tight money policy, finding no response in the United States, come to Australia to spread the gospel and I am afraid they have received very ready acceptance from business, the Government and the Opposition.

The underlying assumptions of this Budget are that there will be an 8 per cent rate of inflation and a 4 1/2 per cent growth in gross domestic product. We agree that there will be an 8 per cent inflation rate, so that assumption is in order. We do not agree that there will be a 4 1/2 per cent growth in the GDP. As Senator Chaney said, this Budget is based on hope and in that respect we are in complete agreement. The facts of the matter are that the Government has assumed an 8 per cent inflation rate. Increases in expenditure of 8 per cent will mean a zero increase in real terms. I have not seen any comment in the media drawing the public's attention to this very important fact.

If we look at the Budget expenditure in real terms, we find that the first casualty is the social welfare area, where in real terms the amount of money allocated to that vitally important sector of the economy has been reduced by one per cent. The Brotherhood of St Laurence, Father Alex and other people in the welfare area have been going up and down this country painting the most appalling pictures of poverty in areas of depression throughout the country. They have said that they need at least $1.5 billion to raise 2 million Australians above the poverty line, including 750,000 children who are living below the poverty line. In this Budget we have a one per cent cut in social welfare in real terms.

Housing is a very important area. It has been reduced in real terms by 2.8 per cent, and there has been a massive reduction in transport. Those of us who have to struggle daily with the traffic jams in the major cities will find it hard to understand why there is a massive reduction in services such as transport.

In the income tax area there has been a lot of talk about the burden of income tax on the pay as you earn taxpayer. This Budget shows a 5 per cent increase in real terms in income tax on the PAYE taxpayer. We find that all Australians will pay another 12.8 per cent in sales tax, presumably made up of 8 per cent inflation and 4 1/2 per cent growth. The fact of the matter is that the Budget is balanced by increasing the revenue from sales tax by 12.8 per cent.

Education is surely a very important area, particularly as the Government's youth employment scheme relies heavily on the educational sector to train our young people. There has been a growth of only 1.4 per cent in expenditure on education, but this year there will be a massive increase in the burden on youth training.

Let me turn to the deficit in some detail. The Government and the Opposition both have applauded this Budget because it has reduced the deficit to a figure that is substantially below last year's, a figure below $5 billion. It was generally expected, even by its advocates, that a small deficit would be about $5.5 billion. In fact, it has turned out to be below $5 billion. That, in effect, is taking $2.5 billion out of circulation in the domestic economy. That is the only way to look at a deficit-it is the amount of money that is going into or coming out of circulation in the economy.

Let us look at what deficits have done over the period of years from 1975 to 1983. I talk about deficits as a percentage of gross domestic product because there is no other way to look at them to get a comparison in real money terms. We find that in 1975 the deficit was 4.9 per cent of GDP and the inflation rate was 12.9 per cent, so we had a serious problem. In 1976 the Fraser Government started the squeeze. It got the deficit down to 3.3 per cent, but inflation was still up at 13.9 per cent. In 1977 we had a stay-put Budget, more or less. The deficit was 3.7 per cent of GDP and the inflation rate came down slightly to 9.5 per cent. In 1978 the deficit was 3.8 per cent and the inflation rate was still 8.2 per cent.

The squeeze really started in 1979 when we had three years of massive reductions in the deficit. In 1979 the deficit was only 1.8 per cent of the gross domestic product-that was great stuff. It was squeezing inflation out of the system. What did we find in 1979? We found that inflation went up to 10.1 per cent. The Government said: `Let us have a bit more of the same medicine. Let us squeeze a bit harder'. The deficit fell from 1.8 per cent to 0.8 per cent of GDP. That was one of the lowest deficits in Australia's history.

What happened to the inflation rate? It stayed the same at 9.4 per cent. The Government said: `We will squeeze a little harder and forget about unemployment. We will forget about everything. We just have to get inflation out of the system. We will not worry about people, we will get inflation out of the system'. The Government brought the deficit down to 0.4 per cent of GDP. However, what was the inflation rate? Inflation was 10.4 per cent. For three solid, hard, tough years the Government put all the pressure that it could possibly put on the Australian people to squeeze inflation out of the system. But it had no success at all, because inflation was increasing.

We then had the disaster year of 1982. Something had to be done so up went the deficit. The Government said: `We have to put more money into circulation because there is massive unemployment'. The deficit rose to 2.8 per cent, although the Government did not predict that the deficit would be 2.8 per cent of GDP. The deficit reached that level because the Government had to meet commitments. The rate of inflation was about the same at 11.4 per cent. The Hawke Labor Government brought down its first Budget in 1983 with a deficit of 4.3 per cent of GDP. Inflation dropped to 6.9 per cent. In the last Budget the deficit dropped to 3.3 per cent and the inflation rate fell to 6.3 per cent.

I put it to the Senate that in this country we have been through the experience of tight money to get inflation down. Nobody looking at these figures dispassionately could say that that approach to economic management has worked. It has not worked in the United States because today the United States is fueling its economy by massive deficits. Money has to be put into circulation if the problem of unemployment is to be solved. Unemployment is the critical issue in the world today.

I turn now to the Australian Democrat's proposal for income tax reform. It seems we have to wait until September to see whether in fact the Government will reform marginal rates of income tax. I stress the importance of doing just that. I instance the case of a tradesman, for example a toolmaker, who earns $17,500 a year and who is on a marginal rate of taxation of 30 per cent. If that toolmaker works a little overtime and earns another $2,000 a year he will suddenly find himself on a marginal tax rate of 46 per cent. I am talking about a tradesman, a toolmaker. I could also be talking about a schoolteacher or a secretary because I am talking about the average Australian who is the backbone of this country. Such a person would be on a marginal tax rate of 46 per cent. Twenty years ago that rate of taxation was designed to attack the millionaire. This Budget still has not addressed the marginal rate of taxation. This is in spite of the Taxation Summit.

The Australian Democrats have looked at this issue very carefully. They have put a proposal which has not got a lot of attention in the media so I will put the proposal again so it is on the record. We say that the tax threshold should be increased to $5,200 a year. We believe that no tax should be paid up to that point so that people can earn $100 a week before paying tax. After that point the tax rate should be 20 per cent of salaries up to say $10,000 a year. From a salary level of $10,000 a year to $40,000 a year we see no reason why the marginal tax rate should not be increased in a straight line by one per cent for every $1,000 increase in income. At a salary of $40,000 a year the marginal tax rate should be 50 per cent. We believe that should be the maximum marginal rate of taxation with no increase above that level of income. We have costed this taxation proposal very carefully. It certainly is within the realms of a responsible Budget. In fact, we produced the alternative Budget which showed how that rate of taxation could have been readily financed in this year's Budget.

I turn now to the second fundamental assumption of the Budget, that there will be a 4.5 per cent growth in GDP. A 4 per cent growth may have been achievable if we had had a Budget that was reasonably stimulatory in terms of the private sector. The Government is relying on substantial expansion in the private sector, but I believe that such an assumption is not justified by the facts. Last year's Budget relied on a heavy increase in business investment that did not eventuate and since it did not eventuate last year we see no reason for the Government assuming that it will eventuate this year with the constrictions imposed by this Budget.

We have heard a lot about how much of a stimulus the devaluation of the Australian dollar will be to the economy, but so far devaluation has not led to any discernible increase in domestic demand. I believe that a 4 1/2 per cent growth in GDP is an assumption based on hope and not on reality. Also, the economic slump in the United States of America undoubtedly will have a depressing effect on the Australian economy.

I refer now to our balance of trade position. I began by drawing a distinction between the deficit and our balance of trade. For the last five years Australia has been living well beyond its means and that is a situation that cannot continue. If it does, this country will go broke. We will lose our independence. Currently 30 per cent of our exports go to service debt payments on money that has been borrowed over the last five years. That is a serious matter. If we take away Egypt and South Africa from the African continent-a continent that is generally considered to be backward-black Africa spends 31 per cent of its exports on paying for its foreign debts, so on that measure Australia is doing very little better than black Africa.

What should the Government have done about this? The first point is that total State and Federal government overseas purchases amount to some $20 billion. If 25 per cent of those purchases could be made in Australia, from Australian industry, at least $1.5 billion would be taken off our precious earned foreign exchange. Secondly, we have to look on this balance of trade problem as being critical and we have to address it as we would address any other emergency-for example, as we addressed the problems of building defence equipment during the war. We put the economy on to a war footing and said that we would build our own defence equipment. Money was directed to those factories necessary for defence. The Government has to ask itself what industries give this country the best potential for earning export dollars. That criterion alone should be the one used by the Government to direct public funds. Funds should be made available for expanding those local industries that have an export earning potential which will provide the quickest return.

We cannot look to our mining industries or to our farming industries for any dramatic improvement in our foreign exchange earnings because unfortunately they are tied to world commodity prices and all the predictions seem to indicate that world commodity prices are unlikely to increase. It has been said before but needs to be said again that it is a great pity that the effort of the tax summit has essentially been ignored in this Budget. As one who sat through the four days of the Taxation Summit I thought it was a success. It allowed enormous pent up fury about taxation to be vented.

It was very clear that there would be no community support for the ill-fated option C. But on the last day of the summit the Prime Minister (Mr Hawke) gave alternative guidelines which, to my amazement, were agreed to by every important community group represented at that Taxation Summit. He got agreement. Yet there has been no attempt to incorporate those principles in this Budget. We are now faced with assessing a Budget which, presumably, will be out of date when and if the Government announces its tax reform in September. It seems to be a very ill-fated strategy. We could now be debating tax reform and a new Budget at the same time. As it is, we are debating a Budget which presumably will be outdated in September and we will have to start all over again.

Finally, I turn to the youth training scheme which is incorporated in this Budget and to the problem of youth unemployment. About 20 per cent of our young people are unemployed. This is an amazing indictment of Australia. We are prepared to sit back and let 20 per cent of our young people remain unemployed-allow them to go to school, work hard, get qualifications, then go out into the work place and be knocked back up to 40 times as unwanted citizens. This youth unemployment problem is not new. It was very apparent during the last year of the Fraser Government and it has been apparent in the two years of the Hawke Government. I cannot see that the approach that the Government has incorporated in the Budget will do anything at all. It essentially provides for more training. What is the use of training young people when with their new hard-earned skills they go around the market-place to look for a job and no job is available? The only fundamental solution to youth unemployment is to share out the available work.


Senator Ryan —What about economic growth?


Senator SIDDONS —We need economic growth. We will not get it in this Budget. We need it to solve permanently the unemployment problem but we cannot wait for economic growth to solve youth unemployment. That has to be solved today, not in six months, 12 months or two years time when the economy may or may not pick up. In the meantime we are destroying the lives of thousands of young people in our community. We are telling them to go out, knock on doors, get knocked back, be told that they cannot get a job and to get the message that they are outcasts in society. Nothing is being done.

There is only one way to solve the problem quickly and that is to share the available work-permanent part time work. There is nothing worse for young people than to go into industry, work hard for two or three months and then, at the end of that time, look over a precipice; they are out of work again. If they get a job in industry it should be on a permanent basis. Later, I intend to put to the Senate a scheme that would allow all young people to be offered at least permanent part time work. It is a very simple approach. It means simply that we have to prevail upon industry, before it employs anybody else, to make one work station available to be worked on a permanent part time basis for at least one half day or one day a week for four or eight young people instead of just one. If that were done by all employers of labour in this country the youth unemployment problem would be solved overnight. At least every young person would be able to get permanent part time work.

My experience in this area is that a large number of young people are discounted by our society for a whole variety of reasons. Some of them cannot read or write, so they have no hope. The first thing that happens to them when they go to a personnel officer is that they are asked to write down their name and address. They cannot, so they have no hope of applying for jobs in the normal way. Many people, who have been abused by society in many ways-by their parents, by being knocked back for employment so many times and so forth-have all kinds of hangups about life in general. That shows when they apply for work, so they do not have much chance of getting a job. Young women who are perhaps very fat or very unpleasant to look at generally do not have much luck in getting jobs.

If we had this roster system going, if we shared the amount of work available in the community immediately, these young people who are at the bottom of the heap and have very little chance of getting employment would become a permanent part of the work force. They would be able to experience the camaraderie of the shop floor and see that people working in an enterprise, doing something worth while, get a certain amount of satisfaction out of that contribution, that effort. In my experience this is the best way-in fact, the only way-to remotivate young people. However the Government decides to do it, my criticism of this Budget is that it is more of the same. It provides for more training with no guarantee that the youth unemployment problem will be solved in any meaningful way. I seek leave to have incorporated in Hansard the table from which I quoted earlier.

Leave granted.

The table read as follows-

Table 2

BUDGET DEFICITS AND INFLATION RATES

1975-76

Actual

1976-77

Actual

1977-78

Actual

1978-79

Actual

1979-80

Actual

1980-81

Actual

1981-82

Actual

1982-83

Actual

1983-84

Actual

1984-85

Estimate

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

Receipts...

18,264

21,374

23,405

25,534

29,603

34,988

40,785

44,462

48,610

57,098

Outlays...

21,831

24,093

26,717

28,991

31,637

36,098

41,305

48,935

56,570

63,828

Total deficit...

3,567

2,719

3,311

3,457

2,034

1,109

548

4,473

7,961

6,730

Domestic Deficit...

2,855

1,844

2,339

2,237

567

+447

+920

2,482

5,471

3,862

Overseas Deficit...

712

875

972

1,220

1,467

1,556

-1,468

1,991

2,490

2,868

Deficit as % of GDP...

4.9

3.3

3.7

3.4

1.8

0.8

0.4

2.8

4.3

3.3

Inflation Rate %...

12.9

13.9

9.5

8.2

10.1

9.4

10.4

11.5

6.9

6.3

Money Supply Increase %...

14.4

11.0

8.0

11.8

12.3

12.5

11.1

10.3

12.7

13.1


Senator SIDDONS —I conclude by saying that I have endeavoured to put forward an alternative approach for economic management on behalf of the Australian Democrats. We believe that the two massive problems facing our economy are unemployment-particularly youth unemployment but unemployment generally-and our balance of trade. We see no evidence in this Budget that either of those two massive problems has been satisfactorily addressed. As such, we are bitterly disappointed in what the Government has done. We stand for an economic approach which says that there has to be sufficient money in circulation to utilise our resources fully. The only resources that really matter, of course, are our human resources, and they are being pitifully squandered at the moment. We cannot see the justification for a Budget of this stringency when we still have such a high unemployment rate.

We believe that somebody has to put forward an alternative approach. We are doing it. We believe that somebody must look further than the headlines and the opinions of overseas investors and the propaganda that is spread. The Democrats stand for an independent Australia, an Australia that can be proud of what it is doing, stand on its own feet, go its own way, work out its own destiny and can become an example to the rest of the world.

Debate (on motion by Senator Robertson) adjourned.