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Wednesday, 30 August 1989
Page: 610

Senator HAINES (Leader of the Australian Democrats)(3.47) —For the benefit of people who have tuned in to this debate within the last little while, I would point out that we are debating a matter of public importance introduced by Senator Stone which reads as follows:

The further blow to Australia's standing in the world arising from the further down-grading of our international credit rating by Moody's Investors Service.

I would suggest that other than inside Australia it is unlikely that the downgrading of Australia's international credit rating by Moody's Investors Service Inc. is indeed going to have much effect, and inside Australia at the very most it is going to be leapt upon gleefully-as it has already been today-by Opposition members and troglodytes from the H. R. Nicholls Society who like to pretend that somehow this Government is more reprehensible in its handling of the economy than any previous government and that only the Opposition has policies to impress overseas investors.

Senator Stone —The H. R. Nicholls Society? The Prime Minister is its greatest advocate.

Senator HAINES —Senator Stone says that the Prime Minister has accepted the policies of the H. R. Nicholls Society, which simply proves my point. In fact if both the other major parties were not so hell-bent on hanging onto outmoded policies from the H. R. Nicholls Society or other bodies-clearly policies not in Australia's interests-we would not be in the position of having Moody's or indeed any other ratings agency, marking us down and causing even a modicum of ripples in the hearts and minds of Australians as has happened in the last 24 hours.

Yes, we have a foreign debt problem; we all know we have a foreign debt problem; even the Minister for Finance (Senator Walsh) has admitted that we have a foreign debt problem. Hardly anybody could deny that fact and still retain any credibility at all, but we need to ask why we have a foreign debt problem. And the answer is because successive governments have encouraged private sector overseas borrowings by allowing companies which borrow on the international money market to write the interest costs off against their Australian tax liability, reducing it in some cases to zero. What organisation is not going to take advantage of such a wonderful way of reducing its tax liability? What company is not going to move to debt rather than equity financing, given that sort of incentive? Of course, that is precisely what happened.

We could argue that the aim of allowing this sort of tax deductability was justified, at least in the beginning. The strategy was allegedly to encourage investment and development by Australian businesses, thereby creating employment and increasing productivity. That was then supposed to lead to an increase in export items and an increase in import replacement items, thereby reducing our trade deficit. Instead, what has happened is that a series of taxpayer-subsidised, overseas-funded and non-productive takeovers have occurred as Australian businessmen play monopoly with each other's shares. Few extra jobs have resulted. Since the same businessmen that are taking advantage of negative gearing on their overseas borrowings are frequently complaining about Australia's low level of productivity, one can safely assume that there have been no benefits there either. Indeed, I venture to say that very few new products, either for export or as import replacements, have resulted as a consequence of businesses taking advantage of what is now little more than a tax rort. Where are all the new export goods that were supposed to come from this new investment that is taxpayer-subsidised? Where are the new import replacement goods that were supposed to come from this investment funded by overseas borrowings? The answer is that, by and large, there are none. So much for balancing our trade figures by encouraging investment of this sort. All that has happened is that our largely privately-owned foreign debt has increased in both gross and net terms.

As Senator Stone has already pointed out this afternoon, in the last three months gross debt was up by $8 billion to $137 billion and net debt up by $4 billion to just over $108 billion. That is the increase in both our gross and net debts over the last three months. Allegedly on those grounds but, I suggest, more likely through a rather unpleasant form of truculence-given that, although Moody's has downgraded us, we have not been attacked by Standard and Poor's, the other major ratings agency-Moody's decided to downgrade Australia from AA1 to AA2. That was a move that puzzled commentators, not least of whom was a senior official from the Organisation for Economic Cooperation and Development who noted on the radio this morning what many of us already knew: that Australia is not the only country in the world with a high foreign debt. Both the United States and the United Kingdom have high foreign debts. Nor are we the only country in the world with a high trade deficit. Both the United States and the United Kingdom have a high trade deficit. Indeed, where Australia differs from those two countries is that we have a domestic surplus while the others run at a domestic deficit.

However, all of this seemed to be irrelevant to Moody's, who decided to rate Australia just below Belgium, just above Ireland and on the same level as Spain in the scheme of things as far as risk for investors is concerned. That is really all the ratings are about. Essentially, Moody's is saying to overseas investors, `Go ahead and invest in Australia if you like, but demand from them higher interest rates because there is a risk you might not get your money back'. One is compelled to ask: What difference will this make since it has been both Labor and coalition policy to keep interest rates high in Australia in any event in order to lure foreign money into the country to offset in particular last year's high levels of Australian business borrowings from overseas? What difference will it really make in the scheme of things?

The other solution put forward by the other major parties in this country to the problem we are currently facing is to sell off as much of Australia as businesses or individuals from the United Kingdom, the United States, Saudi Arabia, West Germany, New Zealand, Hong Kong, Singapore and Japan will buy. Their response to what is a very real problem was: do not worry about the long term problems that may come from that; sell it for the short term benefits that this may have. But this is a response with its own attendant problems. Australia's high foreign debt means that 25 per cent of export income is eaten up by servicing that debt. What a waste. It means that our current account deficit will continue to reflect interest repayments on past borrowings as well as the rent and dividends paid to foreign owners of Australian assets, all of which goes out of the country.

I recall some months ago sitting in the chamber and listening to National Party senator after National Party senator complaining that our beef industry in both Tasmania and Queensland is almost totally owned by the Japanese at all levels.

Senator Stone —That would not be true. You could not have heard them say that. It would not be true.

Senator HAINES —Have a look at the debate. There were complaints about the Japanese being heavily dominant in the beef industry, particularly in those two States.

Senator Stone —You may be thinking of the abattoir industry, but not the beef industry.

Senator HAINES —The whole area is being heavily dominated by the Japanese, to our detriment. The transport sector in this area is dominated, too. It is not doing Australia any good at all. It means that our current account deficit will continue to reflect those sorts of interest repayments, rents, dividends and so on going outside Australia into the pockets not of Australians but of foreign owners. All this money is flowing out of the country. Our export income is simply not enough to balance it.

The situation is getting worse. Treasury predicted last year that the current account deficit for 1988-89 would be $9.5 billion; it was in fact $17.7 billion, and about two-thirds of that-that is, $12.6 billion-came from repaying past foreign debt. We are caught in a vicious circle caused and now continued by outmoded, discredited economic theories that have meant that Australia has now lost control of its own economy. This means that the Hawke Government and the Liberal and National parties will continue to make it easier for foreign investors to buy Australian property, land and enterprises. In the short run, the more foreign currency we can get by flogging off Australia, the less we have to borrow. But in the long run, by selling off Australia, we further lose control of the economy and saddle future Australians with the problem of paying off the rent, profits and dividends to foreign owners. It means that Australians will continue to suffer high interest rates and the effects of expenditure cuts, despite the fact that most of the foreign debt has been borrowed by the private sector for financing takeovers that add little or nothing to our export or import replacement capacity.

What is worse, the private sector borrowers get a taxpayer-funded subsidy for those borrowings while ordinary Australians are suffering a further reduction in their living standards because private Australian companies have gorged themselves on those foreign borrowings and created this massive foreign debt. In an article in the current Australian Business, entitled `Who Really Owes the Foreign Debt', we discover, as Senator Walsh has already mentioned, that the Australia and New Zealand Banking Group Ltd owes $20.3 billion, Westpac Banking Corporation $28 billion and the National Australia Bank Limited $15.5 billion. I wonder how much of their record profits-because we know they are making record profits-is going to repay any of this debt each year. I suggest very little. Their priority is their shareholders, not the state of Australia's foreign debt. We know that Bond Corporation owes $3.9 billion overseas; BHP, $4.1 billion; Elders, almost $4 billion; and News Corporation, $5.1 billion. Again, I wonder how much of this is due to borrowings used to buy shares in each other's companies and to limit tax payments through negative gearing and, I suggest, a large amount of it.

Failure of successive governments to act in these areas means that neither the Hawke Government nor the Liberal-National alternative has a solution to our economic problem. They both stand for high interest rates, expenditure cuts, privatisation and deregulation, and we have already had a good dose of all of those theories with no noticeable effect of any benefit to this country. Australians continue to import more than we can pay for. I remind Senator Stone that more of this Government's legislative program has got through this Parliament because he and his colleagues support it than has got through because we do. I listed a few of those pieces of legislation this morning-predominantly legislation that hits low income earners. The fact of the matter is that Australians continue to import more than we can pay for, the current account deficits set ever-increasing records and the foreign debt continues to grow.

What is the solution? First of all, we need to reduce our reliance on imports. We could learn a lesson, for example, from the Menzies Government when it experienced a balance of payments crisis in the early 1950s. As the value of exports fell when the price of wool fell after the Korean War the Government realised we had to import less. The then coalition Government did the sensible thing, something which is apparently anathema to the modern Liberal and national parties and this Labor Government: it cut imports. (Extension of time granted) The Menzies Government did not rely on mega surpluses and mega interest rates perhaps to cut imports some day a bit down the track; it did it by imposing import restrictions. It is essential that this Government take similar action. We are not living in a free trading world. Every other country in the world imposes restrictions of some sort. They may not be tariff barriers but they are quite frequently non-tariff barriers that have quite the same effect. If we are not going to increase our export market or make the increase in the exports of any value because of the size of our dollar, we have to cut imports through a variety of measures-for example, by putting a tax on luxury imports and imposing quantitative restrictions on imported goods that can and should be produced in Australia. Anybody who looks at the figures knows that in the single category of food, beverages and tobacco in excess of $2.2 billion was contributed to our balance of trade deficit: Brazilian oranges, French champagne, American cigarettes, imported cheeses, dried fruit, biscuits-you name it-in this category contributed over $2.2 billion to our deficit. They can all either be done without since they compete with Australian products or bear a luxury tax, and the users would be none the worse off. The only thing that is wrong with that suggestion is that it is unfashionable to the market-worshipping deregulators who pass for economists today. One thing is certain: some different action has to be taken.

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