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Friday, 18 August 1989
Page: 434

Senator SHORT(2.46) —I rise to support in the strongest possible terms the matter of public importance submitted to the Senate today by my friend and colleague Senator Stone, namely:

The repudiation by the Reserve Bank of Australia of the Hawke-Keating Government economic policy.

Like Senator Stone, I spent much of my working career in the Treasury. At that time I had a great deal of experience and observation of the relationship between the Treasury and the Reserve Bank of Australia and the way in which the Reserve Bank went about getting its messages across to the Government and to the wider financial community in Australia. In those days we tended to read between the lines a little whenever the Reserve Bank had a go at the policy of the government of the day. Officers of the the Reserve Bank were bits of Delphic oracles. They did it very subtly and very carefully.

All I can say is that this year's message delivered by the Reserve Bank to the Government in its annual report is delivered with all the subtlety of Delphic characteristics of a sledgehammer. This annual report would without doubt represent the most critical assessment of a government's policy in the history of the Reserve Bank. I do not know whether the Treasury, had it been given a free hand to write the Budget Speech of the Treasurer (Mr Keating), would have said the same sort of thing. It may well have done so. It may therefore be that the opening paragraph in the `Economic Comment' of David Potts in the Australian today is a very telling comment. He says:

For an unexpurgated version of what the Treasury really wanted to say in the Budget, read the Reserve Bank's annual report published today.

There is not a single word of endorsement of the Government's budgetary strategy in the Reserve Bank's annual report, since it is not the nature of central banks to criticise publicly their political masters, the silence has its own tongue.

In my view the tongue was very much a sledgehammer tongue, and very rightly so. Much of the criticism is very explicit and it does not need too much reading between the lines.

Senator Stone has already drawn attention to many of the discrepancies between what the Reserve Bank had to say in its report and what the Treasurer and other Ministers of the Government have been trying to say for some time. I do not particularly want to go over that same ground today but some of the disagreements and differences of view are so telling that it is impossible not to do so. Reference should be made to them time and time again because, if there is one thing I give credit to this Government for over the last six years, it is its ability to snow the Australian electorate and many of the more intelligent members of the financial community who should have known better into thinking that it is a good economic manager. This Government and this Treasurer are without peer, at least in the postwar period, in terms of economic mismanagement. The more often the Australian public is made aware of that, the better.

Senator Stone —We have only to look at the foreign debt figures to see that.

Senator SHORT —As Senator Stone has just said, one has only to look at some of the basic statistics and at the question of foreign debt, the biggest problem facing this nation. We have a foreign debt almost without equal in the world, and I will come back to that later. This is a debt that has gone up fivefold in the six-year reign of the Hawke Government and it has left us with a legacy which will require generations of hard effort, toil and reduced living standards to get back to an even keel.

I come to some of the points in the Reserve Bank report to see how they contrast with what the Government has been saying. The bank says:

. . . the general buoyancy of the economy has been such that rates-

that is, interest rates-

may need to remain high for quite some time to achieve the desired effect.

It says that in the context of the need for high interest rates, given the other things that the Government has failed to do in terms of an economic policy mix. The Reserve Bank is saying quite clearly that interest rates may need to remain high for some time to achieve the desired effect, which is a slowdown in demand in the economy. What did the Treasurer say? He did not quite say that in his Budget Speech the other night. The Treasurer said:

All in all, the substantial Budget surplus, the forecast slowing in demand and the expected improvement in the balance of payments, establish a framework for lower interest rates.

Indeed, it also seems to go against the statements by the Prime Minister (Mr Hawke) on Wednesday night and by Senator Walsh yesterday morning that interest rates would fall. There is a fundamental conflict there, and there could not be a more fundamental conflict to take into account, because the Government has been allowed only one policy by the trade unions and other vested interest groups who are beholden to the Government and to whom Labor is beholden. They have refused over the last six years to allow the Government to take the hard decisions that are needed in all the other areas of economic policy, both macro-economic and micro-economic. So, there is the first conflict.

Then the bank goes on to make a very telling statement. It talks about the size of the task ahead of us and says it should not be underestimated. It goes on:

Inflation appears set to remain above the average for industrialised countries, even if demand pressures are contained.

What did the Government tell us in the Budget the other night? It told us that inflation figures for the year as a whole would be about the same as in 1988-89; but the Treasurer also said that, because we were starting the year with a much higher rate than we started the year before, by June of next year the inflation rate would be much lower. In other words, he is saying that inflation will fall during the year, but he is not game to tell us what the figure is going to be at the end of June. Why is he not game to tell us what it will be at the end of June? It is because he made a monumental mistake in it last year, just as he has made monumental mistakes in virtually every economic forecast he has made in this place in the six years he has been Treasurer. In the Budget last year he forecast, if I recall rightly, that by the June quarter of this year inflation would be down to 4 1/2 per cent or thereabouts.

Senator Stone —Three to four per cent this year.

Senator SHORT —He said 3 to 4 per cent this year. What is the inflation rate now? The inflation rate, on a fiddled basis compared with the method of calculating it a year ago, is running at a figure closer to 8 per cent. For the Treasurer to come in here and imply-without having the guts to say what the figure will be-that the figure in June next year is going to be a lot lower than in June this year is absolute nonsense and is not supported by any of the objective evidence that is available amongst the other indicators in the economy. The bank makes this point:

. . . it is imperative that there be a return to progress on reducing both the rate of inflation and the current account deficit over the coming year.

Then there is the telling sentence:

The Bank does not share the opinion expressed in some quarters that, since most of the debt is owed within the private sector rather than by government, it is a matter of little consequence. The extent to which resources must be diverted to its future servicing is the same whether the debt is publicly or privately owed, and the investment which it has enabled will not automatically ensure that these resources are available.

Senator Button was asked questions on this in the Senate today. He absolutely refused even to attempt to answer those questions. He did not even seem to comprehend the basic thrust behind the question, that is, whether there is a difference in consequence between government owed foreign debt and privately owed foreign debt. The reason he was not prepared to answer that was, quite clearly, because he knew that his Prime Minister had it all wrong when in the House of Representatives on 15 June he responded to a dorothy dixer from his colleague Gordon Scholes. In response to that question the Prime Minister said:

The other major distinction between Australia and those countries-

that is, others with high debt problems, such as Mexico and Argentina-

is that in their cases it is debt which is substantially owed by government, whereas in the composition of Australia's debt the honourable gentleman will see the total absence of any basis of fact for the frightening suggestions that are made.

That is, Australians now owe the rest of the world something like $7,500 to $8,000 for every man, woman and child in this country. He made the claim there absolutely without equivocation. The implication has to be that the Prime Minister of this country sees, in terms of the resources that are required to meet our foreign debt, a distinction as to whether that debt is publicly or privately owed. We all know-any economist that has done week one of an economics degree knows-that there is no fundamental difference between private debt and public debt in the sense that the resources that are required from our nation out of our own savings and production to repay that foreign debt are the same whether the debt is private or whether it is public. The bank in this paragraph is taking a very deliberate, calculated and deserved blast at the Prime Minister, who claims that he has all this great economic knowledge but has never shown one whit of evidence of that since he became Prime Minister.

Senator Stone —Or one evidence of wit.

Senator SHORT —Or one evidence of wit. The bank report goes on:

On its own, monetary policy will not produce the longer-term structural benefits Australia is seeking. Beyond a point, it may even inhibit the structural change because of the effect of high interest rates on investment of all types.

If ever there were a cry from the heart of a major economic institution in this country which has a responsibility only for monetary policy, saying to the Government, `For heaven's sake, put in place some of the other policy reforms and changes that are needed to get this country back on the straight and narrow and growing again and becoming competitive in an increasingly competitive world', then this is it. It is an absolute cry from the heart. Also it is totally at odds with the recent claims of the Treasurer, including, I think, in the Budget Speech, that we are undergoing massive modernisation as a result of the policies of this Government. Nothing could be further from the truth. The simple fact is that the structural reforms needed in this country today are far greater than they were when Labor took office in March 1983. For the last six years Labor has failed to take any of the basic reforms that are needed to get this country back in the competitive shape and anti-inflation shape that it needs.

I suppose we really have to ask ourselves whether the Treasurer knows anything about economic policy. Does he know anything when he gets off his set brief? I conclude my remarks by drawing to the attention of the Senate the Treasurer's reply to a question about how many more months of billion-dollar-plus current account deficits we can stand before interest rates have to rise further. When asked this question three or four months ago the Treasurer said:

Well its I mean you don't seem to understand the point I'm making to you, that is there is a structural increase in the current account coming off the net income deficit as a permanent feature, there is some sort of implication the question that once we get to some point of tightness it all sort of falls away, what falls away is the increment and the increment falls always as the merchandise trade deficit or as the merchandise trade deficit overcomes the net income to reduce the current account deficit.

The ACTING DEPUTY PRESIDENT (Senator Bjelke-Petersen) —Order! The honourable senator's time has expired.