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Thursday, 7 November 1985
Page: 1729


Senator CHANEY —I refer the Minister representing the Treasurer to his answer to my question yesterday when he made the ludicrous assertion that a major factor in the decline of the Australian dollar over the last week was the movement in wages in 1981 and the inflation rate inherited by the present Government. In view of the new all-time low of the Australian dollar established in the last 24 hours, is the Minister seriously suggesting that no policies or actions of the current Government are in any way responsible for the continuing currency crisis? If he does concede some responsibility for the present situation, what actions or policies have contributed to the drop in the dollar?


Senator WALSH —What I said yesterday was that the wages explosion engineered by the discredited former Treasurer was a major factor in the destruction of the international competitiveness of the Australian economy and therefore in the present perceived weakness of the Australian dollar-perceived by some people. Another major factor which I should have mentioned yesterday and neglected to do so was the record current account deficit over which the discredited former Treasurer presided in 1981-82 when the current account deficit equalled 6.1 per cent of gross domestic product; 6.1 per cent of GDP was the current account deficit over which the discredited former Treasurer presided during his last full year as Treasurer. It is ironic to hear humbugs in the Opposition asserting that the present current account deficit, which is substantially lower than the record 6.1 per cent over which Mr Howard presided, is, first, catastrophic and, secondly, unprecedented. It is very substantially lower than the record current account deficit over which the discredited former Treasurer presided in 1981-82.

Senator Chaney asked what the Government intends to do. The Government made the decision in 1983 to float the Australian dollar. Some people may argue that the decision was unwise; some certainly argued it at the time, although some of those have changed their minds rather remarkably since, and indeed some of those who were opposed at the time have suggested since that they were in favour of it and indeed tried to claim the credit for it. One of the few things to the credit of the discredited former Treasurer was that when the decision to float the dollar was announced in December 1983, he endorsed that decision.

Having made that decision to float the dollar, the Government intends to stick with the decision to float the Australian dollar and allow the exchange rate to be set by market forces, even though some of those market forces, some people would argue, including many members of the Opposition evidently, that those market forces are ill-informed about what is happening inside Australia. It is ironic that the apostles of the free market who populate the Opposition benches shriek and recoil in horror whenever the free market is given the opportunity to operate.


Senator CHANEY —If I may ask a supplementary question, may I point out to the Minister by way of preface that the trade-weighted index for the dollar was 80.8 points in January and by Tuesday was down to 60.3 points, which seems to be a rather remarkable fall. I again ask the Minister: Is he suggesting that there are no policies or actions of the current Government which are in any way responsible for the continuing decline in the Australian dollar? I did not ask him the question that he purported to answer. I asked him: Is he saying that any of the policies are relevant to that decline?


Senator WALSH —There are time lags in the currency markets, and there are also animal spirits running around. If Senator Chaney wants to quote-and I think his figures are correct-what the trade-weighted index was in the early months of this year, at 80 or thereabouts, and point out that it has now declined by 20, that is certainly a decline in the order of 25 per cent and is a very major decline. There is nothing that has happened in the Australian economy in that period to justify a fall of that magnitude. Indeed, even when this Government came into office and we had an inflation rate in double figures, due principally to the mismanagement of the discredited former Treasurer and the flirtation with a deregulated labour market and collective bargaining, which he decided to embark upon in the middle of 1981 and which touched off a wages explosion of 11 per cent in 1981 and 14 per cent in 1982, even at that time when we had an inflation rate of above 11 per cent, the Australian-United States dollar exchange rate was somewhere in the nineties.

If one looks at the matter dispassionately, it is clear that the 80 trade-weighted index to which Senator Chaney referred or the 90 Australian-United States exchange rate or 90-plus which prevailed throughout most of 1983, was higher than the objective situation justified. Likewise, a dispassionate examination will reveal that the present figures are lower than an objective assessment of the situation justifies.

There are lags; there are also from time to time irrationalities in international currency markets. A government, I suppose, could make a decision that it will attempt to control the exchange rates through direct interventions, but this Government made the decision in December 1983 that the dollar would float.