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Thursday, 17 October 1985
Page: 1394

Senator MICHAEL BAUME(1.01) —Today I wish to express my concern about the growing problems that are clearly emerging on the trade and balance of payments front, as evidenced by the rush into print by the Treasurer (Mr Keating) in this morning's newspapers as a result of an address he gave to the Economic Society in Canberra. The Treasurer's urgent need to try to dampen concerns in Australia about the worsening trade and balance of payments situation is natural because, of course, these worsening trends result directly from government policies. It is no coincidence that the continuation of a downward trend in our overseas reserves, in our overseas trade figures, in our balance of payments in general, has followed the renegueing by the Government on it's statement at Budget time that there would be full discounting at subsequent national wage cases for the impact of devaluatiion of the currency so that, in fact, there would not be a full recompense to Australian workers for the impact of devaluation. That, of course, was a sensible statement by the Treasurer at the time because that devaluation emerged from the fact that Australia was living beyond its means.

The decision to renegue on that deal was made, of course, under pressure from the Australian Council of Trade Unions, which required the Treasurer to change his position totally, which he did. Instead of arguing at the current wage case that there should be a discounting for devaluation of about one per cent the Government is now totally supporting the 3.8 per cent claim. The Government has now said that it will press for a 2 per cent discounting at next April's case, which is to be totally made up by a reduction in taxes to take place in the following September. In other words, there is to be no effective discounting, in terms of take home pay, for the devaluation. That is a reversal of the position that the Treasurer recognised to be important, to be essential, in effect, for the carrying out of the Government's economic policy which was stated to sustain economic growth, to maintain the recovery and, thereby, of course, to improve the unemployment situation.

The latest balance of payments figures show that there has been an 18 per cent rise in the Australian current account deficit for the September quarter over the previous corresponding quarter, lifting it to $3,345m. An 18 per cent rise clearly puts in question the Government's assertion in the Budget Papers that the trade deficit would remain at about $10.5 billion in the current year. That was the level last financial year. It is way above the traditional figure of about 3 per cent. Last year's total of $10.5 billion represented about 4.9 per cent and the forecast was that because of the growth in gross domestic product this would fall to about 4.6 per cent in the current year.

Extraordinarily, the Treasurer has been saying that despite this increase in the overseas deficit the Government felt that the situation was on target and it was not concerned. I found that curious, particularly when I kept hearing the Treasurer's dissertation on the J curve, which, in simple form, means that things will get worse before they get better.

Last night the Treasurer said that not only did he expect things to get better but also, rather than the external deficit falling to about 4.6 per cent of the GDP, he expected it to fall to about 4 per cent. He did not say whether this was simply because GDP would rise faster than expected, or whether the overseas deficit would fall further than expected, but the clear implication is, of course, that the trade figures will improve and that the current account deficit on the balance of payments will get better. The reasons behind his making this claim he did not reveal. We do not whether, in fact, he was relying on Treasury advice. If he is relying on Treasury advice it means that Treasury advice has changed dramatically since the Budget. In the Budget Papers the Treasury kept insisting that it was absolutely vital that there should be full discounting of wages for the devaluation if Australia was to remain competitive and if the Government's objectives were to be achieved.

It is already noted that those objectives have been put in jeopardy by the Government's decision not to discount wages and I now question the Treasurer's reliance on the J curve theory that things, having got a little bit worse, will get an awful lot better.

Senator Townley —They will get an awful lot worse.

Senator MICHAEL BAUME —As my friend from Tasmania says, they will get an awful lot worse. The reality is simple. I do not think the Treasurer has addressed his mind to the question of what happens to the so-called J curve theory when the combination of factors emerges in the economy that is here now in the Australian economy. In the first place, we have to recognise that a large proportion of Australian imports are producer goods, and there is little prospect of imports of producer goods being diminished during an economic recovery which the Treasurer says will be about 5 per cent this year. If, in fact, the devaluation will not have much of a diminishing impact on the level of imports of producer goods it means that their cost to Australia will simply increase. I cannot see how on the import level, at least in the producer goods area, we will have any dramatic improvement, in the sense of substitution by locally produced goods, in that element of our import Bill. Another point I would like to make is that in many areas of consumer goods that are being imported the Australian economy does not have the capacity to respond quickly enough to replace those goods, if there is to be an increase in demand in that area as a result of some of the Government's other policies, for example, the policy of either maintaining or actually increasing real wages.

On the level of imports, it seems unlikely that the Government's strategy will work. What about exports? Do we see any real prospect of Australia's exports booming as a consequence of our devaluation? I must say that I find it very difficult, when looking around, to see why, in a market where we are price receivers rather than price makers in most areas, there should be any major recovery in our exports, certainly one sufficient to reduce the serious problems we face in our balance of payments position. The continuing fall in the price of oil and the prospect of further falls cast a cloud over the prospect of our energy exports and if we look around in the commodity arena, we note that many of our competitors are in desperate need of sales and any pick-up in world demand for those items should, I imagine, lead to a much greater level of exports from the massively indebted Third World nations than from Australia.

We wonder what evidence the Treasurer had to make these extraordinarily bullish forecasts about the balance of payments. Perhaps they are based on the same lack of evidence as his enthusiastic comments and those of the Prime Minister (Mr Hawke) before the last election that interest rates would fall. We saw no evidence from them at that time on what they based this claim. In the absence of any evidence from the Treasurer, by way of, say, advice from the Treasury, to back this claim, I think it should be taken with several grains of salt. Unless the Treasurer can substantiate his claims, which appear to be quite extraordinary, the world community will continue to be uncertain, and properly so, about the outcome of Australia's economic recovery and its impact on our balance of payments.

We know already that the Treasurer is saying-it is reported in this morning's Australian Financial Review-that the Government will continue to put a floor under the depreciated dollar through tight monetary policy and high interest rates. Now we have a clear indication that the depreciated dollar is weak, largely as a result of the Government's own policies, particularly its policy of refusing to discount wages for the devaluation. We notice that the Government, because of its inappropriate fiscal policies, has to have an offsetting-type monetary policy and we see from the Treasurer that this involves the continuation of high interest rates. The Senate is entitled to ask how high do interest rates have to go to protect the currency from the consequences of these government policies. In particular, how high do they have to go to protect this nation from the consequences of the Government's deal on wages with the ACTU. That is the crux. This whole policy revolves around the fact that the Government renegued on its undertaking on wages because it was told to by the ACTU. The continuing balance of payments problem and the high interest rate problem relate specifically to the wages deal the Government did to keep the accord alive.

If keeping the accord alive is so important to the Government that it leads to these kinds of problems, I believe we have seriously to question whether there is sufficient benefit in that enormous cost for us to accept that the accord should continue in its present form. It is a weapon by which the ACTU can continually blackmail this Government because the accord with the ACTU is the only coherent and consistent element of government economic policy. If it were to fall apart, the Government would have no policy. That is why the ACTU has this Government over a barrel and it consistently has the capacity to blackmail it into doing what the ACTU wants it to do. Unless we find much greater evidence that Mr Keating has a sound basis for his comments, certainly a far sounder basis than obviously he has been able to convey to the Secretary-General of the Organisation for Economic Co-operation and Development, Mr John-Claude Paye, who during the week said that clearly the external balance situation was one of the major problems that the Government faced, people like the Secretary-General of the OECD and the rest of the world should look in a very cynical way at what the Treasurer is seeking to do. The Treasurer's policy is one of desperation. He is trying to talk up the Australian currency and the balance of payments just as he tried to talk down interest rates before the last election. I believe he is doing so with as little evidence now as he had then.