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Friday, 8 November 1985
Page: 1855


Senator WALSH (Minister for Finance)(3.04) —If Senator Chaney had bothered to listen to the answer I gave to that question, he would have noticed that I drew attention to the linkage, other things being equal, between the level of unemployment and the level of government outlays as a proportion of gross domestic product. The higher the rate of unemployment on a no policy change basis, the higher the rate of government outlays for two reasons. With no policy changes, welfare payments, particularly unemployment benefit payments, automatically increase, and the gross domestic product automatically shrinks because of the high rate of unemployment. Therefore, because of a squeeze from both directions, other things being equal, outlays as a proportion of GDP rise. Outlays as a proportion of GDP finally came out at 30.8 per cent in 1984-85. It is true that that is the highest they have ever been. So also was the rate of unemployment average throughout the whole year the highest it had ever been. That rate of unemployment was inherited from the discredited former Treasurer, who was the only Treasurer in Australia's history ever to bring off the big trifecta: Double digit inflation, double digit unemployment and double digit wage rises, in the final case for two years in succession. Only Mr Howard managed to bring off that great trifecta two years in a row.

In the last Budget Mr Howard brought down, outlays as a proportion of GDP were 29.9 per cent. Granted, that was lower than the 30.8 per cent outcome of last year. However, the full effects of the disastrous recession of 1982-83, engineered by Mr Howard because of his first flirtation with the fantasy of a deregulated labour market, were not felt throughout the entire 1982-83 financial year. As I remember it, the level of unemployment peaked in April 1983. So the effect on Budget outcomes was not felt until almost the end of that financial year and, therefore, on average for that financial year it had little impact.

Since Senator Chaney is particularly interested in the subject I will have a calculation done for him to show what the outlays as a proportion of GDP would have been if the peak level of unemployment had prevailed throughout the entire 1982-83 period. It would certainly have been well above 30 per cent. Moreover, outlays as a proportion of GDP, and as conventionally recorded, take no account of tax expenditures. The last Budget that the discredited former Treasurer produced is remembered for two things: Firstly, it had absolutely no economic strategy and, secondly, all it had was a political strategy. The political strategy was to see how many pressure groups and vested interests could be bought off with a tax bribe in a desperate attempt for the Fraser Government to survive the impending election which it had originally planned for the end of 1982 and which it ultimately deferred to the beginning of 1983. The reason why it was forced to defer the election it had planned for the end of 1982 was that one-third of the finance committee of the Western Australian Branch of the Liberal Party of Australia, along with a number of other prominent Liberals from all around the country, were caught up in the McCabe-Lafranchi report and the report of the Costigan Royal Commission on the Activities of the Federated Ship Painters and Dockers Union and they were shown to have flogged off companies to the convicted criminal Brian Maher, who then promptly sunk them to the bottom of the harbour. That is the reason why the former Government did not have the election at the end of 1982 and it was forced to postpone it until 1983.

Let me tell honourable senators about the effects of those tax bribes on Budget outcomes. All tax expenditures of that nature have a deferred cost. Therefore, the cost of tax deductibility for housing loans, the cost of private health insurance and a host of other things which I cannot remember but which in total amounted to in excess of $1 billion of those tax expenditures announced in the 1982 Budget, which had a full year revenue cost in excess of $1 billion, was not recorded at all in the 1982-83 Budget either on outlays or on income. The bill was sent to the next financial year and was picked up by this Government.

If we examine in finer detail the irresponsibility and opportunism of the discredited former Treasurer during his last ignominious year in that position, we find that the tax policies announced on, I think, 25 July 1982-I refer principally to the three-year and five-year depreciation rules, although there were others-were never enacted by the Fraser Government. Nor were most of the additional tax expenditures announced in the 1982-83 Budget enacted by the Fraser Government, even though it survived in office for another six months. None of them were introduced in the Budget session in 1982 and, indeed, in order to keep faith with an electorate which had had an expectation for at least eight months of the financial year that these tax concessions would apply, that legislation was ultimately enacted by the Hawke Government in the autumn of 1983.

Through a variety of subterfuges the discredited former Treasurer concealed and understated the true extent of public outlays in comparison with previous years and in comparison with subsequent years. I also mention that the same discredited former Treasurer concealed the true size of the public sector borrowing requirement by entering into a shonky loan-back arrangement with Telecom Australia. Telecom's capital requirements normally had been provided either off the Budget or through borrowings within the public sector borrowing requirement. A shonky arrangement was worked out by the discredited former Treasurer under which surplus contributions to the superannuation fund made by Telecom were loaned back to Telecom without interest, without any formal obligation to repay and without parliamentary approval. I find that particularly incongruous given the poseurs and the humbugs in the Opposition who a fortnight ago rejected a machinery Bill to provide a standing appropriation for the Loans Bill. It is no more than a machinery Bill. They did that on the spurious grounds, and the factually inaccurate grounds to boot, that the Parliament was losing control of appropriations and expenditure. Those same people elected as Leader a shonky accountant who artificially deflated the level of the public sector borrowing requirement, devised this subterfuge to understate the true level of the public sector borrowing requirement and loaned back to Telecom without interest, without repayment obligation and without parliamentary approval, payments made to the Commonwealth Government for superannuation.

There are some other matters relevant to the question of Budgets and Budget outcomes which in the next two or three minutes I would like to deal with. During the period of the Fraser Government in general and the period in which Mr Howard was the Treasurer in particular, there was a sustained decline in real terms of Commonwealth capital expenditure off Budget. Going through the Budgets that Mr Howard presented, in 1978-79 in round figures there was a 15 per cent decline in capital purposes off the Budget, a 13 per cent decline the next year, a 2.3 per cent increase the year after and a 3.9 per cent decline the year after that. One of the ways in which Mr Howard, in his early years as Treasurer, managed to reduce outlays as a proportion of gross domestic product was by running down capital expenditure. One thing he never did get right was his Budget estimates. In every year that he was Treasurer outlays exceeded the Budget estimates. The system was to bring in Budget estimates that showed that outlays had been controlled under this Budget and then to let them creep out throughout the rest of the financial year and hope that at the end of the year nobody noticed that in fact a couple of billion dollars more had been spent in the financial year than was forecast in the beginning. I shall cite some figures, in dollars of the day, on Mr Howard's five Budgets. In the first year outlays exceeded Budget estimates by $175m. The next year he got it almost right; it exceeded it by only $2m. It exceeded it the next year by $244m and in 1981-82 by $463m. In his final year as Treasurer, 1982-83, outlays exceeded the Budget estimates by $1,915-almost $2 billion. Expressed as a proportion of GDP, that is of the order of 1.3 per cent of GDP. That was an increase in outlays, not over those for the previous year, but over those which he had estimated in July. No wonder he failed arithmetic at school.

His record on Budget deficits, in terms of actual outcomes compared to estimates, was marginally better. In his first year the deficit was $665m higher than he had estimated. I ask the Senate to bear in mind that all these figures are in dollars of the day. Converted to 1985 dollars they would be considerably higher, due very substantially to the double digit inflation over which the discredited former Treasurer presided during his last ignominious year in that position. In his second Budget he did manage to bring the deficit in below target by $160m and to $437m below target the next year. That was the zenith of his period as Treasurer. From then on it was a period not only of decline but of rapidly accelerating decline. In his second last Budget the deficit exceeded the estimate by $452m and in the final year it exceeded the estimate by $2,799m-a $2.8 billion increase in the deficit as against his estimate and a $1,915m increase in outlays as against his estimate. As I mentioned before, that does not count the tax expenditures which he hid away in the 1982 Budget and which did not show on either the outlays or the income for 1982-83. That was a subterfuge to buy off sufficient pressure groups and vested interests, hopefully to him to allow the Fraser Government to scrape through one more election. The deferred cost of that bill was sent to this Government. I would be quite happy, any time Senator Chaney wants to have a debate about the economic performance of this Government compared to that of its immediate predecessor, to oblige him.

Motion (by Senator Messner) proposed:

That the debate be now adjourned.

Question put.