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Thursday, 7 November 1985
Page: 1727

Senator TOWNLEY(1.21) —Today I want to address the Senate on a matter that I think is of increasing national importance. It is one on which several other people have spoken recently. Of late the Government has told the people of Australia that the financial house is in order. Many of my colleagues, even over the last few hours, have pointed out that there are many weak points in the way this country is going. I do not have to elaborate on their criticisms. I want once again to point out the long term damage that is being done to this country by this Government. It is because of our deficit that this damage is being done. I think to describe our deficit as a monster would not be going too far. Several indicators are available which display the present Government's considerable additions to the nation's expenditure, to the deficit and to the public debt. There is no doubt that we are experiencing a big spending Labor Administration and, as I said, we have heard about that already today.

But there is an aspect of our Government's behaviour which most alarms me. It is the apparent indifference to when and how the extravagant expenditure by this Government will be faced up to and when it will be repaid. I argue, and I have said on several occasions, that a close examination of our national debt is needed. I am sure that such an examination would clearly display the Government's weak performance concerning the finance of our public debt.

I have with me some figures which indicate the magnitude of our debt problem. One has only to look at a couple of them to see just what is happening with the amount of public debt interest that is having to be paid. Last year it was predicted that the public debt interest would be $5,601m. When the figures eventually came in by the end of the year it was $55m more than that. There was quite an error in the estimates. Let us look at the report of the Minister for Finance (Senator Walsh) on the Forward Estimates of Budget outlays and staffing which was presented in May this year. In May the Government predicted that the public debt interest that would have to be paid to people both within and without Australia was $6,467m. When the Budget came out in August the figure was $300m more than that. In other words, the interest payments, which were already bad, had increased by a considerable amount in the short time between the printing of this document in May 1985 and when the Budget figures were brought out in August.

What is alarming is the way interest payments have been growing. In the 1974-75 Budget 4.4 per cent of the outlays was to be spent on public debt interest. In the 1987-88 Budget, conservatively-the word `conservatively' is stated in the Forward Estimates of the Minister for Finance-almost 11 per cent of Budget outlays is projected to be taken in interest payments on the public debt. That is a frightening figure. If we draw a graph of the figures that are available and include the Forward Estimates from the Minister for Finance's own Department, we find that there tends to be an exponential increase in interest payments. Anybody who knows anything about mathematics knows that, if we get into an exponential increase in one area when other areas are staying stationary, we are looking for long term trouble. For instance, defence expenditure represented 8.4 per cent of the Budget in 1974-75 and is expected to represent just over 10 per cent of the 1987-88 Estimates.

Interest on the public debt is clearly pushing its way into a large proportion of our Budget expenditure. This year for the first time it is more than we are spending on defence. We are now spending more on public debt interest than we are spending on health, education or defence. It is something that I believe the public should be made aware of. It is a complicated matter, but it is something that I note more of my colleagues are starting to take note of. I hope that eventually more Government members will take note and acknowledge just what a serious situation this country is getting into.

It is my feeling that the Government is trying to ignore this situation. It is certainly not admitting that things are as bad as the international monetary people obviously understand them to be. Back in May Senator Walsh, when answering a question by Senator Maguire, said:

. . . it follows inevitably that when an economy is in the depths of recession, as this economy was when this Government came to office, it cannot be turned around overnight.

I think the Minister for Finance was then clearly avoiding the importance of the debt issue. If we have experienced the recovery that this Government keeps talking about-every day it seems to talk about the wonderful recovery that it says is going on-why has there been no improvement in our liabilities, particularly in this area of the public debt? As I indicated earlier the interest payments are increasing whether or not that local recovery is a matter of fact, and I do not really think it is a matter of fact.

The Minister refuses to explain to the people of Australia why this Government is unable to reverse the public debt escalation. Earlier this year I pointed out to the Minister the sad fact that Australia already has a debt per head which is greater than that of such economically disastrous countries as Argentina. We are more in debt per head than Argentina, Brazil, Mexico, Poland and Chile. They are some of the very bad economic countries of this world, the ones that have a very low rating. I just wonder how long it will be before our international banking rating is reduced.

Senator Kilgariff —We are down the drain.

Senator TOWNLEY —I think that, as Senator Kilgariff says, this country is heading down the drain. I believe that we are economically in a very serious situation. If for any reason the prices of our exports collapse or we cannot get them out of the country because of a strike or something of that nature, I can see a very bleak future for Australia.

Earlier this year, when I pointed our indebtedness figures out to the Minister, he responded by avoiding my question. By his actions he indicated that the Government seems to take no worry or responsibility for the public debt's future. I believe there is reason to believe from my questioning of Senator Walsh that the Minister has a fairly weak grasp of the economic consequences of such a large public debt. He tried to suggest that the debt is acceptable for two reasons. He said first that the debt is mainly internally financed-he seemed to think that was a very good thing-and, secondly, that internal financing has no effect other than to restrict the options that government has available to it in the spending area. I agree with the Minister that most of the public debt is internally financed. However, the external financing of the public debt is becoming increasingly important, particularly with the way the dollar is going. Interest payments are increasing as a debit on the current account, and by the Minister's own figures-they are conservative figures, as I said-they are going to get worse.

It is clear from the trends that our public debt interest repayments will continue to put the current account in deficit by more and more. Economic theory suggests that, everything being equal, such a deficit will continue to keep our dollar down and force it down further while it is floating. We all know that a lower dollar means a lower standard of living now and, more importantly, in the future when the public debt interest repayments will go up as they have been predicted to do. The future of our dollar is grim. When we consider interest repayments with a floating dollar it is possible to predict a multiplier effect because a lower dollar means that we have got to pay more interest on international loans, so loan repayments must continue to increase at an increasing rate when our debt payment contracts are made in foreign currencies and our dollar continues to fall.

The result of all this, as I have said, is a lower standard of living for all Australians. If honourable senators want a good example of how we are being affected, I take the example of somebody who has saved up all his life to have one overseas trip. He now finds that whereas a year or so ago he would get $US1.12 for $A1, today I think he would get something like 66c-almost half. So wherever in the world Australians go they will have to pay approximately twice as much as they would have done. So many people are wondering whether they can afford that overseas trip that they may have wanted to take. That is just one example of how our standard of living goes down the drain when the dollar goes down the drain.

I believe that the Australian Labor Party, as the present government of Australia, should be ashamed that it is selling Australia's future down the drain and also that, as it appears, it is unwilling to acknowledge the problem. A look at our poor Tasman neighbours, New Zealand, will show us how bad things are for Australia with respect to our public debt. New Zealand's public debt interest as a percentage of its total government outlays in the year ending March 1984 stood at about 11.5 per cent. The Finance Minister's own conservative Forward Estimates put Australia's public debt as a percentage of total outlays at nearly 11 per cent by 1987-88, and I would say that it will amount to more than that 11 per cent. When New Zealand public debt hit the 11 per cent mark, several of the United States lending institutions downgraded its credit rating. I think that we can predict such a downgrading for this country in the near future. The effects of the downgrading will be immediate. The Australian Financial Review pointed out last year when New Zealand was downgraded:

Since most major US lending institutions would bid for tenders only from AAA or AA plus rated countries, Moody's downgrading (of New Zealand) was likely to restrict the range of lenders and result in a slightly higher rate.

Therefore Australia will be able to find credit only at a higher interest price and we will probably have access to smaller amounts of credit at a time when we need more. It is clear from all this that we must reduce our government spending, and reduce it now before, like New Zealand, our living standard has to decline in order to pay for the excesses of government spending. This Government just has to recognise that its responsibility to the future generations of Australia is paramount and that it must reduce spending. It must curb its irresponsible spending and reduce it in a significant way. That means that it must reduce the real deficit of this nation, not by shaving the edges off small amounts but by really cutting into the actual deficit that otherwise, as I have said, will reduce the living standard of every Australian and make it a lot harder for the young people of this country ever to enjoy a standard of living such as we have.

Sitting suspended from 1.35 to 2 p.m.