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Wednesday, 13 November 1985
Page: 2083

Senator SIDDONS(3.50) —We are debating a matter of public importance relating to the Government's policies on interest rates and the value of the Australian dollar which, it is suggested, have been disastrous. We heard an impassioned contribution from the Opposition spokesman in this debate, Senator Michael Baume, who for some time was an adviser to the Liberal Party Treasurer, Mr Howard. Much of Senator Michael Baume's time was taken up in talking about the size of our deficit and comparing current deficits with those under a Liberal government. Unfortunately, he insisted on talking of deficits in terms of actual dollars rather than as a percentage of gross domestic product. Unless one does that, because of the inflation factor one does not really understand what the real value of the deficit is in relation to past years.

In the time available to me I want to argue the case that the Government's economic policy cannot be said to be an abject failure just because of the fall of the dollar. We must look at two aspects of Government policy-the macro-economic side which includes unemployment, the Budget, interest rates and wages, and the long term economic policies of the Government which includes its industrial policy which impinges on imports and exports. First, I want to dispel two basic fallacies which seem to be accepted as gospel by the Opposition, by the Press and even by the Government itself. Let us look at the proposition that the strength of the Australian dollar reflects in some real and direct way the strength of the Australian economy. I do not believe this to be the case. The price of the dollar at the moment is set by the money market dealers-cum-speculators who buy and sell currencies simply in order to make a profit out of currency movements around the world. These people survive by guessing what the movement of foreign currency will be and, to be successful, they must stay ahead of their competitors. The last person out of a falling currency stands to lose his shirt-certainly large amounts of money. Currency dealers trade on rumours, psychological factors and how they think other currency traders will react to certain economic indicators.

Senator Michael Baume —The market.

Senator SIDDONS —Well, essentially they are speculators. Currency dealers are panic merchants rather than rational assessors of economic performance in any one country. Their judgments on economics plainly do not deserve the reverence that our Press seems to give them.

Senator Michael Baume —They can't keep swimming against the fundamentals.

Senator SIDDONS —Let us look at the currencies and the strength of economies around the world. The plain facts are that a free floating exchange rate does not work. I know saying that is attacking one of the current sacred cows in this country, and I intend to do just that. Despite Japan's enormous trade surplus, its yen has been kept artificially low in money markets for many years. On the other hand, the United States dollar is overvalued to the point where it is killing off American manufacturing industry. America is running a record trade deficit and a record budget deficit, and is financing all this with overseas borrowings. Yet the American dollar has been at record levels and is even requiring intervention by major central banks to force down its price before American manufacturing industry is completely wrecked. The English pound, on the other hand, has fluctuated wildly over the past years but that has had very little to do with the state of the United Kingdom economy, which has remained in the doldrums and has fluctuated very little. The only stable currencies around the world are the European currencies which are largely regulated and pegged against each other in the European monetary system. If Australia wants a stable currency, it must lend its support to the growing movement pressing for international monetary reform. That is what we need. Australia should lend its voice to world opinion and see that that happens.

The second fallacy is another article of faith that I wish to attack. It is an article of faith, which again is taken as gospel certainly by the Opposition and large sections of the media, that the accord and the dollar are connected and that if the accord were scrapped the dollar would automatically rise. I do not believe that this argument can be sustained. I believe that there is no causal connection here. As I said earlier, the value of the currency is set by the gambling instincts of the financial market. Who knows what would happen if we scrapped the accord and deregulated the labour market? I think the most likely immediate outcome would be industrial chaos. Strong unions would go for whatever they could and would be successful in securing higher wages-more than they have been under the accord. This would lead to an endless round of flow-ons as other sectors of industry sought to catch up. Inflation would increase, strikes would certainly increase, and very likely disruptions would go through the roof. The economy, especially the export sector, would suffer and no doubt in the industrial mayhem that could well be precipitated by scrapping the accord currency dealers could get the jitters and the dollar could fall like a stone to the bottom. It is a pity that the only solution the Opposition has offered to Australia's very serious economic problem at the moment is the deregulation of the labour market.

Senator Short —That is not the only solution.

Senator SIDDONS —Well, that is the solution that has been put across in the last few days. I heard the shadow Treasurer say just that last night in an Australian Broadcasting Corporation broadcast. The facts are that it is a very doubtful approach to our problems which has nothing to support it in history. If we go back to the 1980s we know that in 1981 the Fraser Government largely deregulated the labour markets. It lost faith in centralised wage fixing. It allowed the metal industries to negotiate direct with the metal unions and to negotiate a massive 9 per cent wage increase. It flowed right through the industry and did not stop the strikes.

Senator Michael Baume —How did it flow on? It was because of the centralised system.

Senator SIDDONS —It was not. It was decentralised and it was union-to-industry negotiation, which is what the Fraser Government encouraged. It led to a wage explosion the like of which we had not seen in a long time. I believe that the Government must intervene to even out fluctuations in the dollar rather than just jack up interest rates. That is one approach but a very dangerous approach-an approach used by the New Zealand Government-and it has disastrous effects on the economy. I believe that the Government has got to interfere to the degree that is possible bearing in mind our international reserves, the nature of the money markets and so forth. Exchange controls could also be considered. The important point is that we should not crucify the economy with high interest rates simply to protect the currency. There are alternatives. I am not saying that in the immediate future we can avoid high interest rates. Of course, we have to continue to attract foreign capital into the country to keep ourselves afloat, but the long term economic problem is the one we should address and the Government is not addressing it, and it is by far the more important problem.

Essentially, we have two options. Either we stop importing, or we export more. Of those two options we should be focusing on the need to export more-and we can export more if we can get our industries internationally competitive. We need a rebirth of industry in this country, and we will not get it unless there is a government initiative in this area. Our manufacturing sector can quickly earn us foreign currency. Unfortunately, our farming and mineral sectors are governed by commodity prices around the world and they cannot react quickly. Our manufacturing industries could if there were a rebirth of efficiency and if they became internationally competitive.

I have put to the Parliament and to the Government-I hope the Government will take note of this-that worker participation is the essential way to get our industries internationally competitive. We have to rely on the brainpower, initiative and expertise of the workers in our industries. We have to use their ideas and their suggestions, as the Japanese do. If we change our attitude to management we will quickly get our industries to a stage where they can export to any country. Only when our industry is motivated to achieve that will Australia's long term economic problems be solved.

We have a real balance of payments problem but it is hypocritical for either of the major parties to blame the other. Our foreign debt was rising at an extraordinarily fast rate over the last years of the Fraser Government; it is currently rising under the Hawke Government. It is our dependence on foreign investment and foreign borrowings that is the essential problem with the Australian economy and the Australian dollar. We have to get away from this. We should be restricting foreign borrowings. I am not suggesting that we can do that straight away but in the long term we have to restrict foreign borrowings. We have to say that we will be more self-sufficient than we have been.

It was the Fraser Government's policy to encourage foreign money into Australia to finance the resources boom that did not happen. It was Fraser Government policy to encourage the takeover of Australian manufacturing industry and this is also the Hawke Government's policy. This is not leading to Australia's independence; it is not leading to Australia's self-reliance; it is not helping Australia's exports. If we are fundamentally to fix the problems of our currency and the balance of trade we have to look at the fundamental issues. As I have said, industry is the only quick alternative. We have to get our industries competitive internationally. It can be done. It is a great pity that the Hawke Government has not turned, as one would expect a Labor Government to do, to the manufacturing sector and said: `Here is the solution to our problem. How can we get this sector of the economy moving rapidly? How can we get an enthusiasm throughout our economy? How can we be self-reliant and efficient and export? Why cannot we invest funds specifically at those areas of the manufacturing sector which would give us the quickest return in export dollars?'. That is the long term solution; in the short term I believe it is nonsense to try to get a direct connection between the value of the Australian dollar and the performance of the economy. There is no direct connection. We have to take into account the highly speculative aspect of foreign currency markets around the world.