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Tuesday, 10 September 1985
Page: 333


Senator MESSNER(3.33) —All around Australia today people are complaining about interest rates-high interest rates that are getting higher every day. High interest rates are affecting people's decisions to buy cars and other big ticket items such as furniture. Most of all, and most importantly, high interest rates are affecting people's decisions-their wishes, hopes and dreams-to buy their own home. These people are asking: `Why are interest rates rising'? We are being assured every day by Mr Keating and Mr Hawke that the economy of Australia is getting better. On 21 December last year in the course of the election campaign Mr Hawke assured the Australian people as follows:

the outlook for interest rates is as bright as it has been for more than a decade.

Of course, `bright' is the operative word. Taking that statement in the proper way we should have assumed that interest rates would rise, which is what they have done. He continued:

the best is still ahead of us. Australia and Australians will, during 1985, reap the interest rates rewards that are flowing from the successful policies of the past 20 months. We've ploughed the field and sown the seeds. In the very near future, we will harvest the crop.

Some crop, the people of Australia are saying! Why have these interest rates risen in the way they have? Of course, the answer is very simple. It is just as it was outlined in an Age article on 31 August 1985 by Robert Garran.

He said that the rate at which interest rates are rising is due to a deliberate policy of this Federal Government. The reasons for this are varied and numerous, and I will come to some of those points a little later. In general terms, the differences and the problems arise because of the Hawke Labor Government's mishandling of the economy and its negotiations with the Australian Council of Trade Unions. Why has the Government been forced into a corner on these issues? The simple reason is that it has failed to grasp the nettle on the question of wages. I quote Robert Garran, who said in the Age:

If, despite its war of words, the ACTU and its members accept a decision by the Arbitration Commission to discount wages, the outlook should improve. But this is most likely to be achieved because of some kind of deal with the Government.

He went on to say, most significantly:

The danger then would be that the money and currency markets may decide the deal is as bad as a full wage rise would have been.

I think that sums up precisely the situation with regard to the latest pact with the ACTU. Just how bad is the deal? Less than two weeks ago Mr Keating gave an unequivocal assurance that the Government would argue before the Australian Conciliation and Arbitration Commission for a full discounting for the price effects of the devaluation. Then Mr Keating announced the Government's most recent cave-in. According to the deal done between the Hawke Government and the trade union bosses, there will be no discounting of wages for devaluation in September 1985-no discounting whatsoever. Instead, the Government has agreed to a 2 per cent discounting in the March 1986 national wage case-something that is yet to be decided in terms of what inflation rate may then apply.

It is true that the 2 per cent discounting factor will cover the period until March 1986, but it will apply even if the price effects of the devaluation are greater than 2 per cent. So the Government has locked itself into that arrangement to discount wages by 2 per cent even if the devaluation effect is greater. It is no wonder that the money markets are very nervous about this Government's actions. It is true that the Government significantly underestimated the likely effects of the depreciation early this year. There is no reason to believe that it will get its estimate right next time.

It is also true that the Hawke Government has conceded the ACTU's highly dubious 4 per cent productivity claim. It has merely subtracted one per cent from the claim to allow a future claim for 3 per cent. In other words, the Government is pepared to give the ACTU only 3 per cent. I suppose we should be happy about that. This productivity deal has the appearance of being nothing more than a disguised pay increase in addition to indexation, which, of course, is the basis of the accord.

The Confederation of Australian Industry, which was excluded from any discussions between the ACTU and the Government on these important issues, has produced figures that demonstrate that between March 1983 and March 1985 productivity growth in this country was negative. According to the CAI, the entire growth in output has been more than matched by the growth in the number of hours worked. Mr Keating's statement on the ACTU pact in no way challenges or answers that assertion. It is pretty clear that the employers think this deal is bad. It is also clear that the consequences of it for the Australian people will be just as bad. This is, of course, quite beside the further point that emerged from the pact with the ACTU that in September 1986 a tax cut of some $2 billion will be given. I am sure that Senator Walsh, if he were to tell the truth, would be very upset at that kind of announcement, notwithstanding the fact that he may support tax cuts in general, when such a decision is taken so far from the actual events, without knowing the figures and without even having any possible budget against which to assess that cut.


Senator Cook —Are you opposed to tax cuts?


Senator MESSNER —I have pointed out that we are not opposed to tax cuts at all. What we are complaining about is the fact that the Government is promising these things without any possible understanding of how they might affect its Budget. These things were all pointed out in the Australian Financial Review of 12 April this year and have been the subject of debate in this chamber at another time. The Financial Review stated:

Mr Hawke's basic credibility problem with all this-

that is, the problem of negotiating wages-

is that he is negotiating about wage rises that are in addition to full indexation. He is not specifically addressing the question of discounting indexation for the effect of the currency devaluation but debating the ACTU on its own ground-about extras and on-costs that were never a part of the accord anyway.

Mr Hawke is at sea because even a serious argument about possible additions to full indexation is rightly inimical to financial markets. The balance is so fine between full indexation of wages and inflation that confusion about where the Government stands must inevitably lead to fears in the markets, as Mr Hawke is finding.

That comment, of course, is just as relevant in today's market situation as it was on 12 April this year. The article from which I have just quoted speaks of markets. Indeed, the overseas money markets are demonstrating that there is again a very serious lack of confidence in the Australian dollar, which fell to about 66c this morning on the New York market. In recent times we have seen utter chaos in the domestic money market. The prime interest rate has now reached 18.5 per cent and the interest rate for home loans is now 13.5 per cent, having risen from 11.5 per cent. But what of real interest rates? Here lies the very important and significant problem for this country. I have before me a table which demonstrates that, as of July 1985, we have, the highest real interest rate-5.3 per cent-that this country has seen for 50 years.


Senator Teague —How much was that?


Senator MESSNER —A real interest rate of 5.3 per cent. I point out to Senator Teague that that is the difference between the nominal interest rate and inflation. That figure of 5.3 per cent represents the highest interest rate that this country has seen for 50 years. I seek leave to have this table incorporated in Hansard.

Leave granted.

The table read as follows-

INTEREST RATE ON HOUSING LOANS TO INDIVIDUALS FOR OWNER OCCUPATION

Nominal and Real-1975-1985

Nominal

CPI

Move-

ment

Real

1975 March...

11.5

17.6

-5.2

September...

11.5

12.0

-0.4

1976 March...

10.5

13.4

-2.6

September...

10.5

14.0

-3.1

1977 March...

10.5

13.7

-2.8

September...

10.5

13.1

-2.3

1978 March...

10.0

8.3

1.6

September...

10.0

7.9

1.9

1979 March...

9.5

8.2

1.2

September...

9.5

9.2

0.3

1980 March...

10.5

10.5

0

September...

10.5

10.3

0.2

1981 March...

11.5

9.4

1.9

September...

12.0

9.0

2.8

1982 March...

13.5

10.6

1.1

September...

13.5

12.3

1.1

1983 March...

12.5

11.4

1.0

September...

12.5

9.3

2.9

1984 March...

12.0

7.6(a)

4.1

September...

12.0

6.1(a)

5.6

1985 March...

11.5

5.5(a)

5.7

July...

12.5

6.8(a)

5.3

(a) Excludes Hospital/Medical component

Source: Parliamentary Library Statistics Group

HOUSING INTEREST RATES 1950-1975

Year

Savings

Bank

Housing

Loans

Actual

% p.a.

CPI Change

(financial

year)

%

Real

Interest

Rates

%

1950...

3.88

(1950/51) 13.0

- 8.1

1951...

3.88

(1951/52) 22.5

-15.2

1952...

3.88

9.4

- 5.0

1953...

4.5

1.9

2.6

1954...

4.5

0.7

3.8

1955...

4.5

4.1

0.4

1956...

5.0

5.8

- 0.8

1957...

5.0

1.0

4.0

1958...

5.0

1.6

3.3

1959...

5.0

2.5

2.4

1960...

5.0

4.1

0.9

1961...

5.75

0.4

+ 5.3

1962...

5.75

0.2

+ 5.5

1963...

5.25

0.9

4.3

1964...

5.5

3.8

1.6

1965...

5.75

3.6

2.1

1966...

5.75

2.7

3.0

1967...

5.75

3.3

2.4

1968...

5.75

2.6

3.1

1969...

6.25

3.2

3.0

1970...

8.25

4.8

3.3

1971...

8.25

6.8

1.4

1972...

7.75

6.0

1.7

1973...

7.75

12.9

- 4.6

1974...

9.5

16.7

- 6.2

1975...

11.5

13.0

- 1.3

Source: Reserve Bank Occasional Paper No. 8A Australian Statistics 1949-50-1978-79.


Senator MESSNER —I thank the Senate. There are major reasons why all this has been happening but the fact that our Australian dollar is falling in value is having very significant inflationary effects in the economy. The Government has attempted-attempted only-to do something about that by negotiating with the ACTU. The effect of wage indexation and the accord will, of course, only lead to further inflation through the feeding in of the inflationary effects of the falling dollar. Yet all the Government can do is cave in to trade union pressures and do deals at midnight in hotel rooms to make arrangements with the ACTU. The employers, the other half of the equation, are left out in the cold. Is it any wonder that the Australian dollar today is down to 66c in New York?


Senator Cook —When are you going to tell us about your record?


Senator MESSNER —I will come to that. Senator Cook may be interested to hear a few facts about it. We all understand that the problem of the falling dollar and its inflationary effects stem from the real difficulties that this economy suffers because of a lack of competitiveness, because of the high cost of labour in this country and the effects upon the ability of this country's exporters to sell on world markets. This has led to a very significant rise in the deficit on our current account and the balance of payments. Let me cite the increasing balances which have occurred during the Hawke Labor Government's term of office. The deficit on current account in 1982-83 was $6.3 billion. In 1983-84 it rose to $7.4 billion. This year it is $10.1 billion. That has to be found by the importing of capital. Because of that rising effect, the Government is being forced to allow borrowings to be made. That means that interest rates in this country, by deliberate Government policy, have to be kept high-higher than the rates applicable overseas-in order to attract money to this country to pay for the growing deficit that is entirely in the responsible hands of the Hawke Labor Government. Those figures demonstrate that for three years we have nearly doubled our deficit on current account and, as a result, we are being forced to borrow more and more overseas to cover it. Those are the facts and that is the reason we are seeing interest rates rise at the rate we are.

For those who are concerned about the effect of all of this on our growing overseas debt, let me cite a few figures. In 1983, the year in which the Hawke Labor Government came to power, our total gross debt overseas was $36.4 billion. It has now risen, in 1985, to $68.4 billion. As a proportion of gross domestic product, it has risen from 22 per cent to 33 per cent. An increase of 50 per cent in just three years has occurred under the Hawke Labor Government. Is it any wonder we are seeing an increasing loss of faith overseas?

The cost of servicing the debts that we are accumulating as a result of these policies is very interesting. The repayments in the first year of office of the Hawke Labor Government, in 1983, were $6.6 billion. They are now $11.5 billion a year. As a proportion of exports, those servicing payments have risen from 11.1 per cent in 1983 to 14.4 per cent. These are the facts and these are the reasons why this Government is being forced to drive up interest rates in order to protect its own situation and to protect a falling Australian dollar. It can only lead to a viciouscircle with increased interest rates in order to protect further the Australian dollar. As it falls, so it will generate further inflation through this Government wage indexation system and its pact with the ACTU, and continue to drive the cost of money higher and higher.

The outlook is very bad for individuals. Some people in this country are finding it hard to borrow money for their homes. Instead of borrowing $40,000 over a period of, say, 20 years to buy a house, banks are being forced, because of the rising cost of money, to increase the term of those loans and many people are having to take on a 29-year loan. They will be paying off the loan further and further into the future. Mr Keating says that this Government is a `can do' government. It sure is. It is just giving in to what the unions demand. All of us on this side know that.


Senator Walsh —High growth.


Senator MESSNER —Senator Walsh can tell us all about that when he has his opportunity. What is Mr Keating really trying to say to us? In effect, of course, he is only kidding. All he is doing is ensuring that, through his control over interest rates and the method in which he is operating, fewer and fewer people will get housing loans. He is not protecting people. Interest rates will continue to rise and the value of the dollar will fall. The wage decision and the lack of confidence which exists will add to that. We will have a higher deficit on our current account overseas. Our money supply target, which is now in the order of 20 per cent, has blown out substantially. We have a rising overseas deficit, debts and servicing requirement. That adds up to a very sorry picture of the administration of this country's economy by the Hawke Labor Government.

Let me try to sum up all of this. The disastrous wage pact with the ACTU focuses all attention on that chief area of concern in economic affairs. That piece of madness has now created a new round of loss of confidence in this Government both in this country and overseas. This comes hard on the heels of the MX missile crisis, confusion over ANZUS, the refusal to acknowledge, firstly, the wage problem arising from the devaluing dollar, the cosmetic expenditure cuts in May and, of course, all the other political factors which are around at the moment. It is just another land-mine in the mine-field labelled the accord into which this Government has stumbled. Indeed, it resembles a game of blind man's bluff, with the Government being pushed around from one union pillar to another trying to find some kind of settlement. Indeed, these accommodations with the trade union movement which follow one upon the other are just examples of giving in at the first available opportunities. Keating has waved his paper of surrender at the Australian people, proclaiming not peace in our time, but peace at any price. The consequences of this are disastrous. Australians do not deserve this gang of union puppets to run their country.