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Tuesday, 12 November 1985
Page: 1972

Senator MICHAEL BAUME(3.50) —Today in the debate on Appropriation Bill (No. 1) 1985 I want to raise the problem of the consequences of the Australian Government's economic policies in as much as they have played a major role in the balance of payments problems that are revealed today. There can be no questioning that these balance of payments problems are a direct consequence of governmental economic policy, of which the Appropriation Bills play a part. I think it is important to recognise the details of the present balance of payments problems. The figures that came out today show a deficit of $1,600m-odd for the fourth month of this financial year. In Question Time today the Leader of the Government in the Senate (Senator Button) mentioned that this was simply the figure for one month and therefore not a figure on which one should necessarily place a great deal of importance. Obviously, though, not even Senator Button could pretend that it was not a disastrous figure.

The reality is that when we look at deficit figures for the first four months of this financial year we see far more than a one-month figure. We get a clear pattern of very serious problems emerging for Australia on the balance of payments front. For the first four months of this financial year the deficit on current account is around $5,000m. That is a rise of 25 per cent. That figure is 25 per cent worse than the figure for the same period of the previous financial year. That represents not just an inconsequential one-month figure; that figure reveals a clear trend that has been proceeding this financial year. When we look at the components of this disastrous 25 per cent worsening we find that it is despite an increase of 19 per cent in exports and is due to a 23 per cent rise in imports. About half of the worse current account figure is due to a trade balance disadvantage and the other half is due to other factors.

If we look at the trade situation for the same four months of this financial year it is clear, as I mentioned, that we have an enormous blow-out in the deficit, despite the fact that there was something like a 19 per cent rise in exports. The depressing element of that-it might sound curious to describe it as depressing-is that there was an 18 per cent rise in rural exports during that first four months. The reason I describe that as depressing is that it necessarily means that rural exports must fall sharply in their level of contribution to our balance of payments for the remainder of the year. The reason that must happen is that the Bureau of Agricultural Economics has forecast that its previous hopes of something like a 2 per cent rise in rural exports this financial year will not now eventuate. The Bureau of Agricultural Economics has now reduced by 2 per cent its forecast for rural exports and expects that they will remain at about the same level as that for last year.

I think that even the mathematical geniuses on the Government side will recognise that, if there has been an 18 per cent rise in rural exports in the first four months of this financial year and yet the total for the year will be no greater than that for last year, rural exports in fact will make a much lower contribution to our exports for the remaining eight months of the financial year than they have done in the first four months. In other words, it will require a very significant increase in other exports even to hold this line; that is, of course, unless there is a dramatic reduction in imports.

Unfortunately, when one looks at the prospects for our trade balance it is very difficult indeed to be confident about what will happen for the rest of the year. That is why it is not simply doomsaying or talking down the dollar to reveal what are the basics; the fundamentals; why we are seeing these figures. We have to face the fact that we have a fundamental imbalance in our current account. We are, in fact, in some severe difficulty. It is not simply a question of the Australian currency fluctuating because, in the terms of the Prime Minister (Mr Hawke), the money markets are silly, or because, in the terms of the Treasurer (Mr Keating), the money markets are stupid; it is because we have a serious and real problem which this Government must face up to.

In these figures we can see that in the first four months of this financial year, with imports for example, fuels and basic materials had falls of about 10 per cent and 5 per cent respectively, despite the fact that there was a substantial increase in imports. I have raised the matter of fuels to make the point that there has been a temporary benefit to Australia on this front because we have been exporting a fair amount of our own fuel production. However, this will simply be a temporary situation. I expect that in a reasonable time we will go back to being a much larger net importer of our fuel requirements, particularly over the longer period as our self-sufficiency diminishes. So there is not much of joy on the import front and certainly there is not much of joy on the export front at present.

If the Government is determined to talk up the money markets and is determined to ignore this massive $5,000m deficit so far this year, surely the people of Australia are entitled to a revision in the Government's forecasts of what it thinks will happen to this vital element in our economy. The markets are going to depend on their own estimates of what will happen if all we hear from the Government is a continual chatter about the J curve, which appears not yet to have discovered where its own bottom is. It would seem to me that, if we have had a $5,000m deficit in only four months and the Government is still forecasting something like a $10,000m deficit on current account for the full year, we will have to see a sudden and massive reversal of the present figures, otherwise we will miss by a very considerable amount the Government's target of $10,700m for the current account deficit. That is what the money markets fear.

It was pointless the Prime Minister saying just the other day that he still expected the current account deficit to be down to representing something like 4 per cent of gross domestic product by the end of the current financial year if in fact that figure is not based on any effective revision by his economic advisers in the light of recent events and certainly in the light of the latest figures on the balance of payments. There is no doubt that there will have to be a revision.

I think we are all entitled to ask: Does the Government, in the light of these figures, stick by its forecast or does it not? If it does stick by its forecast of $10.7 billion for the current financial year, what are the changes in imports and exports that it now expects after the first four months? From where will we get these major increases in exports? From where will we get the massive reductions in imports that are needed to meet this prediction? From where will we get the major changes in invisibles? I certainly cannot see from where they will come, and neither can the market. Such a situation would require for the rest of the financial year an average current account deficit of something no larger than, say, $750m a month. We have compared that with the fiture of $1,600m for the latest month. We would have to have something like $750m a month in order to reach the Government's ultimate target of around $10.7 billion for the full year.

It seems to me that if the Government has not revised its forecasts it darn well ought to. It is totally irresponsible for any government to keep trying to talk up money markets by giving false and misleading forecasts about the likely balance of payments. It is false and misleading to do so. The Government is recklessly indifferent to the truth if it fails to revise those figures and fails to seek official revision of those figures. If it is still simply relying on its Budget-time forecasts, it seems to me that it is misleading the Australian people and deliberately seeking to mislead the money markets, which it spends more time insulting than informing. If the Government has made no revisions, I think it is quite right for the Senate to require of it that it does make these revisions and that it does inform the Australian people. It may be that my guess that it has made no revisions at all is wrong. Maybe the Government has done these revisions and is keeping them secret, in which case that is totally improper as well. The Government has a clear responsibility to come clean with the money markets instead of insulting them.

What are the economic policies that have brought about this kind of difficulty? We can look very clearly to one major factor that prompted the first bit of a run on the Australian currency in recent times, and that was the full 3.8 per cent indexation of wages. As I have said, at that stage the markets were insulted by the Government for behaving in a silly, emotional and irresponsible way. I hope that the Ministers in this place who made that kind of comment will now apologise to the money markets. Anyone who took the advice of those Ministers of this Government and regarded it as silly to mark down the Australian dollar and who bought Australian dollars on governmental advice would now be losing a packet, just as would be the case for those people who believed this Government, this Prime Minister and this Treasurer when they forecast that interest rates would fall. Anyone who had taken that advice and acted on it would now also be losing large amounts of money. This kind of irresponsibility by this Government and those Ministers indicates, I think, a desperation to try to talk up the currency no matter what the facts.

As I have said, the facts behind this balance of payments problem and, as a result, this foreign exchange problem relating to the currency are clear. Following today's announcement, we have seen the Australian dollar fall further. No doubt those involved in the markets will be making their own assessments when they study thoroughly overnight the details of this very depressing balance of payments situation which has been released by the Commonwealth Statistician. What we have to recognise is that the fundamentals in the Australian economy are looking particularly unhealthy. We have a situation in which our costs are rising at something like twice the rate of those of our trading partners. This is due largely to the Government's own economic policies. It had a chance, when an economic recovery emerged at the time the drought ended and the world economy improved, to underline a sound and secure period of economic growth for Australia. Instead, its own pressures forced it to seek much quicker, much more once-off and much more unsustainable growth than was in Australia's best interests.

I suggest, as I have before in this place, that the Government's willingness to accede continually to the demands of the Australian Council of Trade Unions-that is, the union bureaucracy with which the Government bureaucracy deals, in particular the head bureaucrat, the Prime Minister, who has experience in both of these bureaucracies-the extent to which they find each other's company comfortable and the extent to which the union bureaucracy can dominate and determine the policies of the present Government are clearly to Australia's major disadvantage. The fact that the Government renegued on its undertaking at Budget time to discount fully the impact of devaluation on Australian wage rises has, I think, set the scene for continuing problems in our balance of payments. It underlines the fact that our costs will rise and will continue to rise at a far faster rate than will be the case in other nations.

It astounds me that people in this chamber continually say: `But we really are discounting wages by 2 per cent next year. We are holding costs down'. As I have pointed out continually, that is utter bunkum. The tax cut that will come into effect in September of next year is aimed entirely at offsetting that 2 per cent discount. It is, as was demanded by the ACTU, a $2 billion tax cut in September next year to offset the discounting of wages. So it is a phoney discounting. In net terms, the take-home pay of Australians will not be affected even though the Government has said that there will be discounting. The Government now tries to claim the credit for this absolutely phoney discounting which has to be paid for by these tax nasties, some of which are in front of this chamber and many of which have yet to be introduced. I will get on to that issue in a moment.

It is clear, particular to the money markets, that this Government has been waging a phoney war against cost pressures that face Australia. It has waged that phoney war because it has one hand tied behind its back by the dominance that the ACTU has over it by using the prices and incomes accord as a tool for blackmail. The Government has to do what the unions want it to do; otherwise the trade union movement continually says that the accord will not survive. As the accord is the only piece of economic policy that this Government really has, the Government certainly cannot afford to have that accord to fall apart. As a result, it will do anything, particularly what it is told by the ACTU, to keep that accord in existence.

The general thrust of the Government's economic activities has been to increase Australian costs. The huge deficits of the last three Budgets demonstrate that. It is incredible that the Government seeks to get any public accolade whatsoever for allegedly cutting its deficit in the latest Budget to which these appropriation Bills refer. The cut is only from an absurdly high level that it itself introduced. One cannot justify the accumulated deficits of the last three Labor Budgets, all of which were far higher than any deficit produced by the previous Government. When the Government reveals that it has cut the deficit from the previous Government's level, it will be entitled to some applause, but only some applause, because we have to recognise that the previous Government's last deficit of about $4 1/2 billion was a deficit in a disaster period when we were suffering from the worst drought in something like 50 years, along with an international recession.

It is a nonsense for this Government to claim purity on the grounds of the deficit being not as bad as it was last year or the year before that. It is still appalling. Its level of expenditure is unsustainable. Its policies are pushing the Australian dollar and the Australian balance of payments down the gurgler. It is about time that the Government stopped fooling itself. When Ministers go into their own cabinet meetings and say the sorts of things at those meetings that they say here-the policy decisions are made in the Cabinet room-then it is grievously misleading itself. The consequences can be seen in the balance of payments and in the foreign exchange markets. If the Government does not impose sufficient discipline on itself now, there will be one clear way in which the consequences of that lack of discipline will be revealed, and that is in our external relationships.

Let me deal with the question of the tax measures that are to pay for the tax cut next year, which as I said is no more in 1986-87 than the offset of the failure to discount wages for devaluation, which is, of course, a reneging of an undertaking given at Budget time. I think we can express a fair degree of concern, not simply at what is happening but at the manner in which it is happening, the manner in which the Government is introducing these taxes to pay for this so-called tax cut. Because the business community, particularly the small business community and the farming community, has to pay the bulk of the $800m tax cost in these tax nasties, let us not pretend that Australia's cost structure is somehow being saved by the tax cut next year. The tax cut is being paid for largely by the very sections of the community which have to try to compete in world markets and which have to try to contribute towards an improvement in the disastrous balance of payments figures we are now looking at.

Let us look at the disgraceful manner in which the Government is adding to the cost burden of the Australian community. I refer to the technique used by this Government of announcing a planned change in the tax system-a policy change-as being applicable from a specific date, and not intending to introduce the legislation for about six months. That is an intolerable situation. The capital gains tax was introduced from 20 September according to Government fiat. The Senate will not have the opportunity to vote on that legislation until some time in March.

Senator Messner —We won't even know what is subject to tax.

Senator MICHAEL BAUME —As the shadow Minister says, we will not even know what is subject to tax. This is a most appalling style of government. This is the way in which the rights of the Senate and of the Parliament as a whole are being subverted by a government which has no concern for those rights. It is all very well for people outside to say to the Opposition: `What are you doing to oppose these things?' It is very difficult for an Opposition to oppose something when, firstly, it does not know what that something will really be; and secondly, when it will not be brought before it to give it the opportunity to oppose it until it has been in place for so long that it has gained de facto acceptance. If the Opposition manages to defeat the Government's proposals six months after the event, it will mean that for six months people in the community will have made commercial decisions on the basis of something that ultimately does not happen. They will have been hoaxed, if you like, by this Government. They will have been pushed into a situation where many of them will have gone broke as a result of the falling property values that emerge from some of the asinine governmental decisions which will not come before the Parliament for debate until February or March next year. That is not a sustainable position.

This is not some new tactic. The Government introduced this disgusting approach to legislation in May 1983 when, from memory, the lump sum superannuation tax was introduced in this way. These are specific changes in policy. They set new policy directions. They are something that the Senate is entitled to discuss and has the right to reject. Yet this Government seeks to trample over that right by cementing in these things before it gives the Opposition the opportunity to oppose and, hopefully, in many instances to defeat these proposals.

I remind the Senate of the different and honourable way in which the previous Government introduced major changes in tax policy. For example, in 1981, when the previous Government sought to extend the indirect tax system to cover what were described-and wrongly described-as necessities, such as clothing, footwear and so on, in this chamber the then Opposition, now the Government, objected strongly to those measures and, in line with its continued policy, from which it pretends occasionally to depart, it was successful in defeating those proposals. Let us see how the mechanics worked. On that occasion the Treasurer announced the decision in the Budget and introduced the legislation on 25 August 1981, to be effective from 1 January the next year. In other words, about four and a half months were to be given to allow the legislature to examine the proposals before the changes took place. That is the honourable and decent thing for a government to do. Is it too much to ask this Government to be honourable and decent in these matters? Instead we find this Government adopting this totally different approach.

This Government, which is so concerned about principles that it tries to maintain a synthetic rage-it tried to do so again last night-is not concerned with the reality of the attack on the rights of this Parliament by introducing this kind of tax measure de facto so far ahead of the date on which the Senate is to be given an opportunity to vote against and to reject it. It does the Government no good to claim that when the previous Government was in office it closed many tax loopholes on the basis of making an announcement that a tax loophole would be blocked and that subsequently legislation would be introduced to support that blocking. The reality is that the blocking of a loophole did not involve making any change at all in policy. It involved the blocking of a loophole under which tax avoiders had got around a clearly stated and existing policy.

Senator Messner —That is right.

Senator MICHAEL BAUME —The former Minister, who had an involvement in this matter, quite properly supports the point I make. The fact is that there was no change whatsoever to existing policy. What was proper and what had a consensus of support from the Opposition was that these devices which got around the existing law had to be blocked off and blocked off quickly. But there was consensus. In this present situation I assure the Government that there is no consensus and there is no continuing policy. This is a major change of policy. It is the sort of measure which it is totally improper to introduce before the legislation is introduced, particularly when the legislation will follow up to six months later, after people have made commercial decisions.

I simply ask the Government to examine any conscience it may have on this matter. If changes to the legislation are made when it is introduced in the Senate and if, as a result, the financial situation of many people is changed, in effect retrospectively, it will be because of the improper exercise by a government of an authority which I do not believe it has the right to exercise. It cannot de facto introduce laws unless it introduces the legislation itself.