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Wednesday, 18 September 1985
Page: 654


Senator MICHAEL BAUME(10.25) —This is no place for the faint-hearted. After three terms in the House of Representatives, I am only too well aware of the pressures of politics. I come to the Senate with no illusions, either about myself or the manner in which this place is being used, and in some cases unfortunately misused, by its occupants. The role we have here is a most important one, ensuring, if we can, that Australia is being well governed, that our laws are just and that the rights of all Australians are protected. As senators, our responsibilities, like our privileges, are substantial. It is our duty, and certainly it is my intention, never to shirk those responsibilities or abuse those privileges.

Unfortunately, the public perception of politicians is not always favourable on those scores. Deceptive and misleading statements, dishonest promises and the other paraphernalia of political pragmatism have rightly earned politicians and politics a bad name. The standard of behaviour in the Parliament itself-the personal abuse, the reliance on invective rather than sound argument, the constant use, for example, by a Minister of the Crown of a bottom drawer labelled `dirt'-is a poor substitute for decent debate. As the old proverb goes: `He who throws mud only loses ground'. I do not believe that the process of government is in any way advanced by this behaviour. I will have no part of it in my stay in the Senate, whatever its length.

I am here to represent the voters of my State and my nation as best I can. I am not here to settle my personal scores or to vilify or belittle my opponents, although I will energetically attempt to do that to their policies when I believe that these threaten our way of life. I hope that I will be judged here on my contribution to the Senate's performance in making or, in some instances, unmaking the laws under which we live. I hope that that judgment will be on the substance of what I do because it is substance that really matters. The dependence on demagoguery and the reliance on rhetoric that has so often diminished political debate in this chamber no longer carries weight with thinking Australians. We owe them something better. I will try to provide it, just as so many on the long list of my friends and colleagues in this chamber are doing.

I am honoured that the President, a long-standing and respected friend, is in the chair to hear this maiden speech. The presence of my cousin, Senator Peter Baume, is a special pleasure to me. There are many others with whom I established enduring friendships during my three terms in the House of Representatives as the member for Macarthur before coming to the Senate. Some others in the Senate have followed the same course from the other place. These include the Deputy President, Senator Hamer, Senator Jessop, Senator Chipp and Senator Coates who have, like me, had the benefit of experience in both Houses, as has Senator Short. I hope that I will be able to use that experience to advantage, particularly in providing alternative representation to the people of the Illawarra and southern regions of New South Wales who are covered by five Labor-held electorates. From my office in Wollongong it is my intention to service the huge area from Sutherland to the Victorian border, to provide the assistance and parliamentary representation that some residents may feel is not being adequately supplied by the Labor Party members of the House of Representatives for the five electorates involved. But my main task as a senator is not simply to be a surrogate representative. It is to review legislation and today I wish to examine the economic policies of the Hawke Government, as expressed in its Budget, its monetary policy, its deals with the Australian Council of Trade Unions and its present fiasco on tax.

Let us begin by examining whether the Budget is the sort of non-event that it has been paraded as. In fact, it has been described as a Budget in two parts. The reality is that it is a Budget in three parts. The first part was back in May, the second part is what we are now discussing and the third part is what we expect to see, Caucus willing, later tonight before the House is removed from consideration of it. In other words, it is being brought down on the eve of the rise of the Parliament so that we will not have an opportunity to discuss it immediately. Instead the Government will have the opportunity to try to promote its rag bag package-what is left of the proposals of the Treasurer (Mr Keating), after they have been savaged by the ACTU and examined by the left wing in the Caucus.

What is this three-part, partial Budget we are dealing with right now? Let us recognise that, in the first place, last year this Government was saved by a devaluation and this year it has been saved by an injection of inflation. The Budget must be seen in that context. The Senate will remember that the Government in its first Budget squandered the good luck of the breaking of the drought, the world economic recovery and the inherited wages freeze, with a big-spending monster that created problems for subsequent Budgets. The Senate will also remember that before that Budget the Government had a mini-Budget in which it claimed it was showing great restraint; it was cutting enormous amounts of money off government spending. When the 1983 Budget eventually came out we found that all those cuts were monumentally overwhelmed by massive additions of government spending. An amount of $2.5 billion of additional spending in new programs was added after the rhetoric of May was totally destroyed. It is worth while remembering that this was in the context of an alleged fiscal inheritance; in other words, a prospective deficit of something like $9.6 billion.

I put to the Senate one simple proposition: If, after adding $2.5 billion of new programs, the Government ends up with a deficit of about $8 billion, some simple mathematical questions are raised about what sort of deficit it really did inherit. I suggest that to continue to hear from the Government benches the nonsense about this inherited deficit, when the figures so clearly show that after $2.5 billion of extra spending it still ended up with a deficit of about $8 billion, renders absolute nonsense the allegations. There is no doubt in my mind that that $9.6 billion was put up as an Aunt Sally against which this Government's appalling performances in its big-spending patterns would appear to be reasonable. That appearance of reasonableness is in fact a massive deception. Let us recognise that that 1983 Budget was the worst we have ever had in terms of deficit. Let us recognise that the following Budget was the second worst ever and that this is the third worst ever. This Budget has a deficit bigger than any of the previous Budgets, except, of course, for those of previous Hawke governments. It has a bigger government spending program than any previous Budget, and it is the biggest taxing Budget ever. It raises more money for the government sector than any previous Budget ever has.

Let us recognise that devaluation saved the Government from the consequences of those appalling first two Budgets. Let us recognise that economic activity was slowing down towards the end of last year, that the Government was massaging the economy. It was certainly fiddling with interest rates before the election. We could see from the broad economic statistics available that the economy was slowing down. The Government needed a devaluation to provide the stimulus to keep the recovery going. There is no doubt that from the Forward Estimates, for example, it was evident that the criteria used by the Government to judge what its spending would be like included an estimate that was a massive reduction in the rate of economic growth this year. That devaluation was needed to keep the recovery going. That is why the Treasurer praised the devaluation, and has continued to praise it, as something that is magnificent, when the reality is that the devaluation would not have been anything like as severe as it was had it not been for the massively inappropriate economic policies of this Government in its first two big-spending Budgets.

The Government is being saved again. It is being saved this time by an injection of inflation. We have heard how the Government knows what it is doing, how it has fiscal responsibility. but let us recognise that without a massive increase in inflation which is to take place this year the Government would be in serious economic difficulty, certainly in serious budgetary difficulty. It would not be having the sort of growth in revenues that it can get away with-and they are growths in revenues that appear not from any increase in taxes but because of this monster called fiscal drag. In fact, the Government's taxation revenues are going up, as I said, to a record proportion of gross domestic product. They are going up because inflation is helping to rescue the Government from its economic problems. This simple impact of inflation is increasing income tax revenue, for example, by 12.3 per cent and increasing sales tax receipts by 21 per cent. This, of course, is a handy and unlegislated $5,400m increase in the Government's income, and as I mentioned, that has lifted Budget revenue to the highest ever percentage of gross domestic product, to 27.7 per cent.

The cost of all this is the thing that we have to examine. What are the costs to all of Australia of these things that have rescued the Government from its inappropriate economic policies? Of course, the cost is that inflation is to wipe out, over time, those benefits in competitiveness that we have achieved from devaluing. I am afraid that there is nothing in the current budget which reverses that trend in any way. This Budget, in fact, will continue the policy of excessive government spending, of excessive demand on the money markets, which pushes up interest rates, and will continue, I believe, the inappropriate, overall economic policies that have damaged this recovery, not assisted it. That, I think, is the essential point. The Government has continued to take the benefit of everything that has happened in this economy. It has taken the benefit for the fact that it rained. The Prime Minister (Mr Hawke) did coyly admit that God was mainly to be praised for the coming of the rain that broke the drought; but the benefit was only largely due to God, not entirely. The wages pause certainly had a dramatic impact on slowing down the inflation that had been a problem in the previous period as a result of some extraordinary wage decisions through a continuation of a sort of centralised system at that time. The main benefit, of course, was the recovery in the world economy. Those benefits, have been dissipated by these inappropriate policies for which we are now paying the price.

Exactly what are these prices? I put it very strongly that the price is diminished economic growth, a lower rate of growth in employment, and certainly much higher interest rates and worse unemployment than should be the case in such a recovery. But basically, the Government's failure is a simple one. Every time it says that it will do the right thing, and every time it issues these statements which are full of the rhetoric of restraint, it is found that what it does is exactly the opposite.

I must say that in many instances I agree totally with what the Treasurer says is the prescription that is required. I agree totally with what his intentions appear to be. I agree entirely with his rhetoric of restraint. The problem is that, having said the right thing and having recognised what should be done, he then fails to do it. The recent mini-Budget, for example, has now been wiped out. Let us look at May's $1,290m cut in government spending. It has already been halved in new spending plans in the present Budget, and next year spending on these new programs in the present Budget will grow to $1,459m according to the Budget Papers. This more than wipes out, in their entirety, the so-called responsible savings in the May Budget. So you can see, Mr Deputy President, that the gap between the rhetoric and the reality in this Government is now causing a massive economic problem in Australia which, I submit, will certainly worsen our economic situation and diminish our ability to compete. I put it to you that it may well be that it will push Australia dangerously near to the sort of slide we have seen in the South American nations.

I want to deal with the need in this Budget for a smaller deficit than in fact took place. The Government has claimed great credit for the fact that it has cut the deficit substantially, while ignoring the fact that it is still the third worst in our history. The need for a smaller deficit is underlined by the warnings in the recent annual report of the Reserve Bank of Australia against excessive government demands on capital markets. In stressing the need to maintain a firm restraint on money supply, the Reserve Bank admits that growth of money and credit was still stronger than desirable last financial year. This year monetary policy will have to play a greater role because of inadequate fiscal restraint in the Budget at the same time as the Government's reduced but nevertheless substantial borrowing requirement will be competing with the expanding private sector demands for funds.

It seems, just from the Reserve Bank's analysis, that hopes of any sizable cut in interest rates are unlikely to come good unless our economic growth turns out to be far less than the Budget's remarkably optimistic forecast of around 5 per cent. Let us recognise this. If in fact the devaluation was caused by Australia spending more than it was earning, it is ridiculous to increase our capacity to spend in order to wipe out that competitive advantage.

So, on all scores, we can see the Government's economic policy diminishing our competitiveness. It has done deals with the Australian Council of Trade Unions which have increased business costs. It seems to me that it is flying in the face of what the Reserve Bank warns is the right kind of economic policy. The Bank was warned that devaluation, even with wage discounting, may not be enough and that it is essential that the excesses of domestic demands on capital markets, including those of governments over the supply of domestic savings, be reduced. The Reserve Bank, in its annual report, is clearly uneasy about the Government's economic policy. I will point out later that, in fact, the Treasury itself has issued in the Budget Papers massive warnings to this Government about its economic behaviour. How meaningful, however, are the enormous warnings that we have seen in full page advertisements in newspapers, in many statements by people such as John Leard and Professor Fred Gruen, about whether Australia is going broke?

Let us have a quick look at the way the Government has handled its financing of the deficit. On page 78 of Budget Paper No. 1 we can see that $3.4 billion of the $6.7 billion deficit last year was paid for by the Reserve Bank selling off our foreign exchange reserves. We were in fact meeting our deficit, particularly the overseas section of the deficit, by to a large extent selling off our overseas reserves. The entire amount of that $3.4 billion was not met from that source, but a very large proportion was. In other words the Reserve Bank paid for almost half of this deficit by the Government's issuing to the Bank of paper that could be described as worthless.

If we have been running down our external reserves in order to pay for our deficit, what impact has that had on our economy? The simple reality is that it has artificially protected our domestic markets from interest rate pressures that would otherwise have existed and it has artificially affected our currency as well. In other words, our balance of payments has been artificially hit by this Government tactic. I suggest that the Government cannot keep financing its deficits and financing its external debt by selling off our reserves. Sooner or later it will have to stop. If it intends, as it does now, to continue the economic policies of the last two years, there is no doubt that the world community will call a halt. We cannot simply finance our activities by flogging our overseas reserves. When that has to stop we are clearly going to see a situation in which the Government will, in fact, have to borrow all its requirements domestically and, therefore, push interest rates up. It will increase the pressure which has already been enormous, as we have seen from the current record interest rates. In real terms, despite what the Minister for Finance (Senator Walsh) says, they are record real interest rates; they have never been exceeded this century. Real interest rates, of course, are interest rates after we account for inflation. When this running down of our foreign reserves ends, we will see a significant impact on interest rates, underlining the fact that the Government has got away in the last couple of years with some improper policies, policies that are totally counter-productive in terms of our economic recovery and which, I suggest very strongly, are not helping our recovery, but seriously hindering it.

To what extent are we running the risk of going down the South American slide and to what extent have the Government's policies pushed us in that direction? Everyone in the Senate recognises that what happened in most of the South American nations is simple. Their debt mounted, their ability to service that foreign debt was diminished and, as a result, they had devaluations and the devaluations created massive inflation. Because of the massive inflation they were unable to compete in the world. As a result, they had to devalue, and so the round goes on and on. What is to get Australia off that round on which we have apparently put our first step? We have had record devaluation in Australia under this Government, a devaluation I suggest that need not have been so great had it not been for inappropriate government policies. We have started on the round. What will get us off? The key thing that will get us off it is restraining costs in Australia. Yet this Government has done deals with the ACTU, is apparently under the control of the ACTU to such an extent that when the ACTU declares war on profit the Government nods its head and follows suit. That, I understand from the newspapers this morning, is involved in the massive assault on profitability that will be involved in tonight's package. But apart from that the ACTU has required of the Government that it renege on its promise to discount wages for the extent of this record devaluation. That undertaking was absolutely central to any suggestion of restraint in the recent Budget. Yet that undertaking by the Treasurer has been reneged on under the pressure following the demands of the ACTU.

If we are already spending too much to survive, living beyond our means, if the ACTU requires that people have even greater capacity to spend and if the Government is accepting that view-I remind honourable senators that Mr Simon Crean not only said he was seeking to maintain real wages; his program was, in fact, to increase them and the package was to increase real wages-how on earth can we restrain our internal costs in order to compete against the world if we have this kind of pressure and a government giving way to this kind of pressure in Australia? Already we have seen manufacturing input costs in recent days increasing by something like 19 per cent in the latest official statistics. That is the import component of them. The domestic component of them increased by something like 9 1/2 per cent, far above the internal inflation rate. Overall, that meant that manufacturing costs went up by something like 13 per cent in the latest period. How can we compete against the rest of the world if our costs are going up like that? How can we compete against the rest of the world if the Government continually bows to its superiors in the ACTU who want to maintain and increase real wages at a time when our recent devaluation has demonstrated that we are living beyond our means?

It seems to me that nothing the Government has done will get us off this slide. What is going to rescue us? Will it be a massive increase in exports of coal or beef, or any of the commodities on which we have relied for so long? Look around and see where the rescue will come from. Will the European Economic Community suddenly stop dumping its products in our major markets? Is there suddenly to be a massive increase in the price of oil which will make our energy resources more attractive? On the contrary, indications are that the price of oil could fall even further. Nothing on the horizon stands out as the external magic solution to this nation's problems-problems that have been worsened by this Government. Even if there were a pick-up in world demand for commodities, would Australia get the benefit of it? I ask this question because it seems to me that, with so many of our competitors in the commodity markets coming from the impoverished, indebted Third World nations, particuarly South American nations, whose indebtedness to the banks of this world is such that they must be rescued, any pick-up in demand for commodities such as iron ore, copper, lead, zinc, you name it, must be directed to those nations if they are ever to get out of debt or even service their debt and if the world banking system is not to collapse.

What do we have going for us that will encourage the rest of the world to give us a special deal? I cannot see what it is, and so it seems to me that with the Japanese naturally being keen to maintain the existence of the world banking system, we face a diminished future. We face a future in which we have to work harder. We face a future in which we can no longer sit down and expect everything to be served to us on a platter. We face a future in which we can no longer afford the luxury of expecting to get the benefits of a high standard of living without working for them. We cannot depend on luck any more, but this Government is depending on luck. This Budget has been described as a high risk Budget. It is waiting for some thing to turn up. That something will not turn up. We do not especially deserve anything in this world that we do not earn.

At the moment it seems to me that as a nation we are not paying our way. The Government is not contributing to the sort of economic environment in which we will be able to pay our way and, in particular, with its consistent kow-towing to the demands of the ACTU it is massively diminishing any prospects we have of fighting our way out of what seems to me to be the disastrous situation facing us. Sure, we are not there yet. Of course following this line of argument could be discribed as scaremongering, but I put it to you, Mr President, that some healthy scaremongering would not do us much harm. If it wakes Australia up to the reality that the world does not owe us a living, if it wakes the Government up to the fact that it must have responsible and proper economic policies, the sort of scaremongering in which I may be accused of indulging, I believe is doing us all a great service.


The PRESIDENT —Order! Before I call Senator Sanders, I remind honourable senators that this will be the first speech of Senator Sanders in this chamber and I ask that the normal courtesies be extended to him.