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Wednesday, 30 August 1989
Page: 561


Senator STONE (Leader of the National Party of Australia)(10.23) —I wish to respond to the Budget Statement and associated papers brought down in the Senate on 15 August this year. This Budget is best described as another Keating special. It has in it the same kind of misleading presentation we have now grown accustomed to receiving each year from the Treasurer (Mr Keating) when he brings down the Budget Speech.

The speech itself, of course, has become a travesty of what Budget speeches used to be. The television glossy, which is now what it has become, contains a minimum of information and certainly no information at all on matters which would be thought to be likely to have the slightest disadvantageous effect upon the Government's electoral prospects. That information has to be sought by members of the public to the extent that they can afford to purchase the Budget Papers and actually comb through them or rely upon the efforts of the media to assist them in that regard.

I have to say that the media-notwithstanding my often repeated criticism of some of its analytical reporting quality in this country-does do an extraordinary job on Budget night and in the days following the Budget in getting to the detail of the Budget Papers which have now assumed quite mammoth proportions. But none of that information is to be found in the Budget Speech. None of that is to be found in the television presentation. None of that is to be found in the series of what I think my colleague, Dr Hewson, has called the `dog and pony shows' being conducted by the Prime Minister (Mr Hawke) and the Treasurer around the country in the subsequent weeks.

This year the highlight of this misleading presentation of the Budget was to focus attention, or to seek to focus the attention, of the financial markets upon the bottom line figure for the $9.1 billion surplus. Let me make it quite clear that the Opposition is glad to see the Government budgeting for a large surplus. We would be even gladder if it were not for the fact that that surplus in this year was obtained in part by some interesting creative accounting, or what in previous years the Labor Party would have called `rubbery figures' when they were being produced by Treasurers on this side of the political spectrum. To the extent that there were rubbery figures in earlier Budgets-and there certainly were from time to time-they were not as elastic as those in Mr Keating's Budget.

It is necessary to elaborate on the point a little in order to address the question of whether we have had from Mr Keating what he desperately wants the financial markets to believe, namely, a Budget this year which produces an additional degree of fiscal or budgetary restraint upon the economy. I would have to say that when one has examined all the appropriate entrails of the Budget Papers, one cannot accept that judgment. At best, one would say that the degree of fiscal restraint emanating from this Budget is unchanged from 1988-89. If one were to take a somewhat less generous interpretation of some aspects of the figures, one would say, as have some commentators, that, if anything, on balance the Budget this year slightly relaxes the degree of fiscal restraint apparent last year. But I do not regard that as a matter particularly worth debating.

There are many more key points than I have time to produce. My judgment that the Budget this year, on balance, shows about the same level of fiscal restraint as last year is based on two key aspects of the Budget figures. The first is that, quite interestingly, in the dying months of 1988-89 the Commissioner of Taxation simply did not collect about $1.25 billion of provisional tax which it had been estimated he would collect. The result of that is that he will collect it this year. That has two effects. First, last year's Budget surplus finished up at $5.9 billion instead of $7.1 billion. That is the first bit of sleight of hand that we have seen in the Budget figuring this year.

The second instance of a similar sleight of hand is that Mr Keating has decided to bring forward into this year's Budget receipts two items of taxation which otherwise would not have been received until next year. First, by a very significant change-one which has much more far reaching implications than the point I am now speaking about; and I hope to come back to that-Mr Keating has decided to bring forward very considerably the timing of company tax payments. Companies will now be required to pay within 15 days of the end of the year 85 per cent of what they estimate to have been their tax assessments for the year just ended. Without spending further time discussing that measure, the result will be to bring into Consolidated Revenue in 1989-90 $885m which normally would have been brought in next year.

Secondly, the Treasurer has decided that companies with large payrolls-payrolls over $5m per annum-will now be required to remit to the Tax Commissioner twice a month instead of once a month the pay as you earn (PAYE) deductions that they make each fortnight from their employees' payrolls. The effect again of that one-off change will be to increase this year's Budget revenues by $550m. It will not affect next year's Budget revenues because, of course, it is a once-off change. The result of those two measures is to increase this year's revenues by $1,435m-call it $1.4 billion, for the sake of the rounding of the figures. So we have had $1 1/4 billion of last year's revenue being allowed to float over into this year; we have had $1.4 billion of either next year's revenue or a once-off revenue effect brought into this year.

Without those two bits of creative accounting-to use a kindly phrase-Mr Keating's Budget this year would have been not $9.1 billion, but about $6.5 billion. If that revenue float had not been allowed to move out of last year into this year, last year's surplus would have been just over $7 billion. We have actually gone, on what would have been, shall I say, a normal basis of approaching the budgetary position, from a surplus of about $7 billion to a surplus of $6.5 billion. I do not want to spend too much time saying one is smaller than the other and therefore this year's fiscal restraint has been relaxed, but when one actually looks into the figures, as I have just tried to do in brief, one certainly cannot say that the degree of budgetary restraint has been increased. There is no basis for that. Mr Keating knows that perfectly well because, of course, his Department would have told him so. That has not, of course, stopped him from going around the country saying that it has been increased.

Why is that particularly important? It is particularly important because it had been the hope, now sadly dashed, of people in the lead-up to the Budget, when we were getting these stories, that the Budget surplus would be considerably bigger this year than last year, that there was going to be a genuine increase in fiscal restraint from the Government and that that would have allowed the Government to relax somewhat the monetary screws that Mr Keating has been tightening ever since April last year-for the last 16 months now. Not at all: because the budgetary restraint now, in reality, is no different from what it has been all along, there is no basis for Mr Keating to relax interest rates in the near future. He has reluctantly been forced to face up to that conclusion on a number of occasions under questioning at various luncheons, dinners and other media occasions in the days succeeding the Budget. The $9.1 billion bottom line figure was the big thing that Mr Keating was selling on Budget night and that the Government has tried to sell ever since.

The other big thing-if I may say so, equally duplicitous-that the Treasurer tried to sell on Budget night and since was that he has actually addressed this country's savings problem by his measures in the fields of retirement income policy and of superannuation arrangements, the incentives for providing more savings by way of superannuation. What a joke! What a totally duplicitous joke! Indeed, quite by coincidence, the views I am about to state in this regard have been re- inforced only this morning in the feature article in the Sydney Morning Herald by Ross Gittins, which points out, I think I may say in extremely cogent terms, just how duplicitous this attempt by Mr Keating to tell us that he has solved our savings problem has been.

Let me say something about the elements of that piece of duplicity. First of all, on retirement income policy I think we have very little to say by way of criticism about what Mr Keating has done. What he has largely done, in fact, is to pick up the Opposition's retirement income policy, which was launched about a year ago. He has picked it up and taken over quite a number of elements of it-and good on him for doing so; we are totally happy with that. I only wish he would pick up more of our ideas on economic policy. The country would not be in the shambles it is if he were to do so. On the retirement incomes aspect of this particular piece of Mr Keating's other pea and thimble trick, I have no more to add.

It is on the other side, on the so-called superannuation incentives, that the real duplicity exists. What Mr Keating has actually done here is to say that in five years' time there will be some improved arrangements for superannuation. How is that supposed to solve our savings problem today? How is that supposed to solve our balance of payments problem today? How is that supposed to address our foreign debt problem today?

It is interesting also to ask oneself why, apart from the attempt to once again hoodwink the Australian public about the national interest so far as the Budget is concerned, Mr Keating has moved yet again into the superannuation policy field-a field which, I may say, he has been tilling assiduously almost every year since he has been in office, but always in the other direction. In every previous year he has increased the taxation burden on the superannuation industry or, if one prefers, diminished the taxation incentives for people to save through superannuation. This year he has gone in the other direction. One has to ask oneself why that is, apart from, as I say, trying to pull a major confidence trick upon the Australian people. The magnitude of that confidence trick is, incidentally, well demonstrated if one simply reflects that in the measures introduced only in last year's Budget in this area-leaving aside the previous ones-Mr Keating pulled in, and is this year collecting, an additional billion dollars in revenue from changing the superannuation arrangements. Now he is promising the savers of Australia that he might give a little of that back in five years' time. They might even get a small amount of it back in the next few years, but even in five years' time it will be of the order of $200m a year. Meanwhile, Mr Keating will have gone on picking up his billion dollars a year. So much for the incentive to save.

In addition, let us be quite clear that the other reason why Mr Keating has gone back, so to speak, on his tracks in this area is simply that he has found out that in the wake of his decisions last year-the decisions, remember, which were not going to cost anybody one cent-those measures, on the contrary, have had the most deleterious effects upon the superannuation industry, particularly as they affect the position of lower income and lower to middle income people. Under the arrangements which Mr Keating put in place last year it was still advantageous for upper middle income and high income people to take advantage of the taxation incentives for saving through superannuation. But it became very much a marginal calculation as to whether it was still advantageous for lower income people to do so, or even for lower middle income people to do so. Suddenly, Mr Keating's own constituency in the trade union movement found out it was not so easy to get people interested in getting into the superannuation area, which would have been one of the selling points that Mr Keating had agreed with Mr Kelty they would have to bolster the Australian Council of Trade Unions (ACTU), and the trade unions' position in the scheme of things, not to mention putting them in the position of putting their hands around the windpipe of the economy some years down the track.

I have spoken to this point about the two major aspects which Mr Keating has tried to use to sell this Budget as yet, once more, the latest answer to this country's problems. We have had this every year from Mr Keating and the country's problems have gone on getting worse and worse and worse, as we have just seen in the foreign debt figures issued yesterday and in the further turning down of thumbs by international credit rating agencies as was shown on the Moody's announcement yesterday. We will come to that later today.

But leaving aside those two aspects of Mr Keating's Budget, let us look at the fundamentals which that Budget should have been addressing. Let us see how well it addresses them. What are the fundamentals of our economic problems in this country today? Everyone would acknowledge that the Budget has now been brought back into surplus-as I say, not in a manner which we would have judged as best for that purpose; by not cutting spending but by way of raising taxes-to a point where, once again, this year taxes will run at a record proportion of the national product. Indeed, 25.2 per cent of GDP will once again, on the Government's own estimates, be collected this year and that is a record.

As I say, let us concede that we are glad to see the Budget in surplus and let us not spend further time, therefore, in debating as to whether it should have been better brought into surplus by cutting spending rather than by putting up taxes. Let us look, however, at the other aspects of the economic fundamentals which are much more sadly lacking-foreign debt and the rising level of foreign ownership of Australia. The thing which underlies both of those phenomena is our continuing deficit on the balance of payments, our continuing incapacity to live within our means. Inflation is endemic in Australia and that was what honourable senators will recall Mr Keating called in his Budget last year Australia's No. 1 economic disease. There is not much sign in this year's Budget of addressing that No. 1 economic disease.

Because of those fundamental things that are wrong with the Australian economy today, we have the crushingly high level of interest rates with first home owner mortgage interest rates stuck at 17 per cent and, in some ways even more importantly, I would have to say, overdraft rates for the 750,000 small businesses around this country at 21 to 25 per cent, depending on the individual credit ratings of farmers and other business people. In turn, because of those very high levels of interest rates and the fact that they sit there looking attractive to overseas lenders, we have a very high level for our exchange rate; that is, very high in terms of the underlying quality of economic performance of the country whose currency is involved. We have, in other words, an exchange rate that on the basis of this Government's policies-I emphasise that phrase-is clearly overvalued. Why is it overvalued? It is overvalued because Australia has become a haven for hot money. With 90-day bank bill rates still touching 17.9 per cent, having been at one stage well over 18 per cent, how can we be surprised?

Because our exchange rate is up where it is, imports are much cheaper-in Australian dollar terms-than they would otherwise be and our exports bring in less to our export producers in Australian dollar terms than they otherwise would. For that and other reasons we have a massive balance of payments deficit. Yesterday the Australian Statistician published new figures for foreign debt-indeed, not just foreign debt but for what the Statistician now calls our international investment position, taking account of both foreign debt and other forms of liabilities to foreign owners. The figures are, frankly, quite intimidating. As of 30 June this year, foreigners owned nearly $70 billion of Australian corporate equities; we owed $137 billion in debts to foreigners; and with other investments, which I do not have time to go into, the total of our overseas liabilities amounted to $221 billion.

It is true that on the other side of the ledger we do have some foreign assets. Australians own nearly $43 billion of corporate equities. They would be principally owned by those very same superannuation funds that the Treasurer is now going to make the linchpin of our savings policies. I can confidently predict that when he does the investors will continue to invest overseas just as much, just as high a proportion, as they are now doing, given the retrospective prospects of doing so overseas as opposed to investing at home.

There are some foreign borrowers from Australians-$8 billion. Our Reserve Bank has assets of $20 billion which the Government continues to claim belong to it. I would like to hear the views of the Governor of the Reserve Bank on that matter. Adding all those amounts together, we have foreign assets of about $80 billion. When we wash up those figures together our net position at 30 June this year was net foreign liabilities of $140 billion, including $108 billion in net debts. How did the Budget address that situation? It did not.

Mr Keating has tried to con the Press Gallery in this place by saying that he is doing something about our foreign debt position because the Commonwealth Government is paying off some of its debt. That is certainly true. It is paying some of its debt. That is like saying that a man who is in debt with three different bankers pays off banker A by borrowing from banker B. That is what Mr Keating is doing. He will be paying off banker A-that is, Commonwealth debts. In order to do so, as long as we have the reality of that underlying balance of payments deficit, some other Australian will have to borrow exactly the same amount from banker B. It is about time that the media stopped repeating this stuff from the Treasurer which is designed in the most cynical way to throw dust in their eyes. I am surprised that the media continue to accommodate this situation and continue to repeat material which is so cynically calculated to deceive them. Were I a member of the media I would be a bit indignant about that process. I might go out after the Treasurer and ask him an awkward question or two. I would look forward to it.


Senator Lewis —It is a long time since that happened.


Senator STONE —I think the media are beginning to catch up with Mr Keating. I look forward with great optimism to their doing so at a greater pace than they have done up to this time. The reason we have this continually increasing level of foreign debt and this continually increasing sale of Australian assets to foreigners is that we continue to live beyond our international means. We had last year a deficit on our balance of payments of $17.4 billion. Mr Keating predicts in the Budget Papers that we will have $18.5 billion this year. No improvement! Stuck at over 5 per cent of the gross domestic product-an extraordinarily high figure.

In the same sense inflation is stuck. Mr Keating is predicting that we will have an increase of 7 1/2 per cent this year in the consumer price index. That is virtually unchanged from the 7.4 per cent last year and the 7.3 per cent-or was it 7.1 per cent?-of the previous year. It is virtually stuck. There is no change in the disastrous policies which have produced, I repeat, a net foreign debt of $108 billion and a total net foreign investment liability position on our national balance sheet of over $140 billion. Because we have this apparently endemic, apparently unchanging level-certainly not an improving level of inflation-and this continual running into the red in our external account, we will continue to have very high interest rates, or something like them, for a long time yet.

Mr Keating conceded in a remark last week that he expects that we will have to suffer high interest rates-perhaps not quite as high as the present levels-for two or three years yet. While I welcome that concession to reality under this Government's policies, there are no policies in place which will mean that that period will be confined to the next two or three years. On the contrary, there are no policies in place which will prevent that continuing even into the distant future-the really distant future. Three years is distant enough, after all, for most people to be contemplating interest rates anything like we have at present.

To add to all this, the Government-particularly in the person of the Prime Minister-has now aggravated, and virtually helped to bring on, a disastrous dispute between the air pilots and the companies that employ them. That dispute will not merely produce the greatest difficulties for the travelling public of Australia-which it is already doing-and the greatest financial difficulties for the major airlines concerned but, what is much more important than either of those things in terms of magnitude, it will produce, if it continues, the gravest economic crisis for Australia because of the effects it will have on our tourism industry.

Our tourism industry has now become our single most important export or foreign exchange earner. Last year alone it earned $6.5m in foreign exchange-even more than wool. Last weekend the front pages of the Japanese newspapers were filled with-guess what?-news of the airline pilots dispute in Australia! This week our travel agencies, our major hotels and so on have been receiving communications from Japanese travel agents-I have heard of about 20 to date-who are saying, `Sorry, we are cancelling all future tourist trips to Australia'. I do not have time to elaborate on that theme now. We said something about it yesterday. But I ask: Where is the Government's policy taking us?

Mr Keating says that he is going to crush demand by using crushingly high interest rates. Let us assume, without arguing it for the present, that that is right. It is not right, but let us assume that it is. What will Mr Keating do then? When demand has been crushed, when interest rates start to come down a little because there is no longer any demand for credit because people have nothing worth borrowing for, where do we go then? If imports do start to fall off and the balance of payments starts to look a bit better, if Mr Keating starts to rev up the economy at all, we will go straight back into another balance of payments crisis and interest rates will go back up again. We will continue to have, because the accord has determined that we will have, 7 1/2 per cent inflation, or something pretty close to it. We will have the classic situation of stagflation.

Do honourable senators remember stagflation? Stagflation equals high inflation and economic stagnation. That is what this Government is delivering to us. I believe that Mr Keating's Budget of 15 August, because it failed to address any of these problems, has totally failed to meet the economic needs of this country.


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