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Wednesday, 13 November 1985
Page: 2085

Senator SHORT(4.04) —In speaking to this important matter today, I mention two basic facts which the Government cannot conceivably deny. However, before doing that I will pick up a couple of the remarks of Senator Siddons and Senator Maguire, who led in the debate for the Government. One has to dismiss Senator Maguire's contribution as an amazingly weak apologia which showed not the vaguest understanding of the problems facing Australia. That total lack of understanding is merely indicative of the lack of understanding which pervades the Government's management of the economy at this time. In support of that statement, I quote an excellent article from today's Sydney Press which cites a very respected economist, Mr Ray Block, the Chief Economist of the investment bank Dominguez Barry Samuel Montagu. The article pointed out:

Australia's record October current account deficit of $1,640 million-

that is $1.6 billion in a month-

emphasises yet again the `foolishness' of the Federal Government's economic strategy . . .

He said the Government was hiding its head in the sand. Mr Block said this mentality was epitomised by remarks of the Finance Minister, Senator Walsh, last week. Senator Walsh said the Government would not sacrifice growth just to maintain the value of the dollar.

It is not possible to understand the basic economic parameters of this economy and at the same time to make that remark. Mr Block continued:

On balance, the Government's dilemma is that, locked into an unfavourable agreement with the trade unions, it has no flexibility with little room for manoeuvre other than to beat the economy with a Draconian interest rate policy.

Worst of all, as Mr Block pointed out, the Government does not really understand why it is at fault in the situation in which Australia finds itself. Two basic facts which the Government cannot deny are: Firstly, interest rates in Australia today are at their highest level in at least 50 years when account is taken of inflation. Some calculations indicate that they are at their highest level in more than 100 years. The second basic fact which the Government cannot deny is that the value of the Australian dollar against other currencies in recent times has been at its lowest in at least the 40 years since the Second World War. Those two facts have major implications for every Australian. Let us look quickly at those implications.

The fall in the value of the Australian dollar has lowered the standard of living of every Australian. It means that Australia now has to sell more of its goods and services overseas in order to buy just the same amount of goods and services from overseas that it did a year ago. Since the beginning of 1985-only 10 short months ago-the value of the Australian dollar has fallen by more than one-quarter. That means that for every $4 needed in January to buy goods and services from overseas we now need $5. Thus, as I have said, the standard of living of every Australian has fallen. This fall in the value of the Australian dollar also adds to inflation because it increases the cost of imported goods and services. The figures show clearly that inflation in Australia is now on the rise again. It is now running at an annual rate of between 7 and 7 1/2 per cent. The Treasurer (Mr Keating) estimated in his 1985 Budget that inflation will rise to 8 per cent in 1985-86.

Senator Michael Baume —That is understated.

Senator SHORT —I believe, as does Senator Baume, that that figure is understated and that by June 1986 inflation will run closer to 10 per cent annually. But even 8 per cent is too high for our domestic well-being and it is far too high on an international competitive basis. It is an inflation rate more than double that of some of our major trading partners, notably Japan, and it is well above the average inflation rate of our dozen or so main trading partners.

Senator Michael Baume —It would be three or four times Japan's rate.

Senator SHORT —That is right. The fall in the value of the dollar is adding massively to our foreign debt, our repayment of debt and the interest on that debt. Our foreign debt now totals approximately $70 billion and that is more than twice its level only two years ago. A large part of that increase is owed because of the fall in the value of the Australian dollar. We now need $1 in every $3 that we earn from exports simply to meet our foreign debt repayment obligations. That figure is dangerously high particularly at this time when the prospects for many of our export industries are far from encouraging. Apart from its inherent dangers, this increase in our foreign debt and debt obligations also constitutes a direct reduction in the standard of living of all Australians. The massive rise in interest rates over recent months-as I have said, they are at their highest level for at least 50 years-is another contributor to the inflationary spiral now re-emerging in Australia. These staggering interest rate costs which Senator Michael Baume outlined earlier-I will not repeat them-affect everyone in our community. They affect people buying their homes, who are hit by rising repayments which they could not possibly have budgeted for; people seeking rental accommodation are forced to pay higher rents; investment becomes a very costly and risky proposition, so it is quite simply not undertaken in many instances; and small businesses, which traditionally operate on overdraft arrangements, are being mauled by the interest rate factor. This damage is not only to the business owners but also to those whom they employ.

The rural sector, already facing difficulties with its export markets, depressed commodity prices and rising internal costs, now finds itself saddled with a further heavy interest cost burden-at a time when farmers are in no earthly condition to carry that burden as they face a projected fall of 26 per cent in the value of rural production this year. Indeed, we have on our hands in Australia a rural crisis of considerable magnitude, a crisis which the Hawke Labor Government seems not even to acknowledge exists. It is illuminating and I believe quite devastating to compare these movements in interest rates and their harsh consequences for all Australians with the promises made by the Prime Minister (Mr Hawke) and his Treasurer (Mr Keating) during the 1984 election campaign. Ten days before the 1984 election the Prime Minister said:

What I can be certain about is that there will be a continued downward movement in interest rates.

Senator Michael Baume —That was along with no capital gains tax.

Senator SHORT —That is right. On the same day he said:

The outlook for interest rates is as bright as it has been for more than a decade.

Treasurer Keating said during the election campaign:

I think there is an interest rate step fall ahead for Australia and its interest rate structure generally throughout 1985.

The Prime Minister, just after the 1984 election, said:

Australia is a country which doesn't need an increase in interest rates and it is not going to get it.

So much for the fine words of the Prime Minister and his Treasurer. These statements on interest rates were no less untrue than the Prime Minister's now infamous promise during the 1983 election: `There will be no capital gains tax'. What we have now are record high interest rates and firm government proposals for the introduction of a capital gains tax. I remind the Senate of the wording of the Opposition's matter of public importance today:

The impact of the Hawke Government's policies on interest rates and the value of the Australian dollar.

I have stated the facts about interest rates in Australia today and about the value of the dollar. I have also outlined the implications that flow from those facts. They add up to a very sorry tale, a very worrying picture of the problems the Australian economy is currently experiencing and which it will face over the period ahead. The question, of course, is whether it is fair to sheet these problems home to the Hawke Labor Government's policies. As I said in this chamber last week, I do not pretend that the government of the day, whichever government that may be, can be expected to have the answers to all these problems. However, governments can and do set the economic environment which determines in large measure whether these problems will arise in the first place and to what degree. There can be no possible doubt that the economic policies and the economic mismanagement of this Hawke Labor Government have had a major adverse impact on interest rates and on the value of the dollar, and therefore a major adverse impact on inflation, unemployment and living standards in this country.

It is an enormous myth that over the past two and a half years the Hawke Labor Government has demonstrated itself to be an efficient economic manager. That is a myth and a hoax. The facts show that very clearly, none more so than the crippling interest rates we face in Australia today and the record low value of the Australian dollar. Which policies of the Hawke Government are causing our existing economic problems? There are many, including the frighteningly loose monetary policy. However, two stand out beyond all the others. These are the Government's profligate approach to its own spending and the Government's strong and unholy alliance with the trade union movement in perpetuating a wage fixing system in Australia which bears no relationship whatever to the economic needs and realities Australia faces. I would like to say something about these two policies.

In relation to government spending, in the first two Keating Budgets, government spending increased at a faster rate than under any other government in Australia's post-war history, with the one notorious exception of the bankrupting Whitlam years. It is true that the rate of increase in spending was cut back in the third Keating Budget in 1985, but even allowing for this, when the three Labor Budgets are averaged out spending still has increased by almost 5 per cent each year in real terms, still making this the second highest spending government in our post-war history and far in excess of what was in the best interests of our nation and therefore our people. When the Hawke Labor Government spends at that rate it also has to tax at that rate. As well as being the highest spending government in Australia's history it is the highest taxing government. Under the Hawke Labor Government, taxation takes a higher share of total national production than at any other time in our history. Even that record level of government spending and, therefore, taxation has not been sufficient to match the record increases in the profligate spending.

Over the last three Budgets alone this Government has borrowed an additional approximately $20,000m to meet the gap between its spending and its revenue figures. That represents $1,250 for every man, woman and child in this country. If it is put on a taxpayer basis, it is closer to $3,000 for every man, woman and child in Australia. That borrowing has to be repaid, and it has to be repaid with interest. This year the interest bill alone, leaving aside altogether any repayment of the borrowing, is more than we Australians spend on the total defence of our country and more than the Federal Government spends on education. It is more than the Federal Government spends on health, even with the enormous drag of Medicare. For every $1 that the Hawke Government now raises in taxes it has to use more than 10c in each dollar simply to repay its borrowings.

Senator Michael Baume —Just for the interest, not the repayments?

Senator SHORT —That is right; just the interest. That is the prime reason for the record interest rate situation we have in this country. It is the result of irresponsible and misguided fiscal policy by the Government. The other reason, of course, is involved with the plummeting value of the Australian dollar.

The other aspect of major concern, as I said, is the wages situation facing this country. The unreality of the Hawke Government-Australian Council of Trade Unions wages deal is perhaps the main reason why the international community in recent days has passed such a damning and costly judgment on the Australian economy by marking the Australian dollar down to record low levels. If I may say so in my concluding seconds, for Senator Siddons to say, as he did today, that the factor affecting the dollar is just international speculators at play, is incredibly naive.

The ACTING DEPUTY PRESIDENT (Senator Elstob) —Order! The honourable senator's time has exprired.