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Tuesday, 8 October 1985
Page: 792

Senator WATSON(3.36) —I move:

That the Senate take note of the paper.

The report shows the movements in the receipts and expenditure of the sinking fund of the Commonwealth account. It also shows movements in State responsibility so far as receipts and payments are concerned. It gives a summary of the balance sheet of the national debt sinking fund account and details of redemptions, et cetera. I would like to use this opportunity to comment on the structure and the degree of debt and the implications for the Australian economy as such. Commonwealth debt has increased at an alarming rate-to almost $30 billion in June 1984. Total foreign debt has increased sevenfold since 1980. It now stands at $52 billion. Heavy borrowings by State and Federal government enterprises have been one of the biggest single factors in this rapid increase, but we must also acknowledge the significance of the borrowings of semi-government authorities, which have tended to pull down the Australian dollar against other currencies.

The payment of interest and principal on debt accounted for about 8 per cent of export income in 1975-76 but skyrocketed to almost 28 per cent in 1983-84. The debt servicing costs, which are the largest single item in Australia's growing invisible deficit on the balance of payments is indeed a matter of concern. It is not surprising, therefore, that some overseas countries, and some authorities in Japan, for example, are expressing concern at this situation. In fact, one or two commentators have claimed that Australia could well need bailing out through the International Monetary Fund in the not too distant future unless positive steps are taken.

The major problems seem to be a failure to develop an export-oriented industrial base and the continued low prices for primary produce and commodities, which are causing major difficulties. But hand in hand with this problem of foreign debt is the fact that it has tended to increase interest rates. These high interest rates, of course, are due to our high international deficit on the current account, which is now running at $10 billion per annum. This deficit works in two ways. It causes a depreciation of the Australian dollar, but it entails a long-term problem of causing inevitable price increases in the internal system. The Reserve Bank of Australia understands the problem, which I do not think the Government understands. In order to achieve a conterbalancing inflow of overseas funds, and to get an adequate level of inflow of funds, it must pitch interest rates pretty high so as to maintain a satisfactory level of foreign investment to cover that deficit gap.

In summary, the current account deficit has caused a rise in interest rates because it causes a depreciation in the dollar and causes a consequent inflationary expectation. Unless the Government comes to grips with managing the economy in a much more satisfactory manner than it has in the past, we will be in for a horrendous time in the future. I commend the report to the Senate.