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Thursday, 19 August 1993
Page: 360

Senator MICHAEL BAUME (4.39 p.m.) —by leave—I move:

  That the Senate take note of the report.

This annual report of the Reserve Bank is a very important document and always comes in budget week. It is interesting to note the difference between the emphasis the Reserve Bank puts on the problems facing the economy and the measures taken by the government.

  As the Senate will be aware, the opposition has at times expressed some concern about the need to ensure that the Reserve Bank is kept totally free from being influenced by the government in respect of its policy decisions and its right to comment on what is happening. Certainly a few years ago there was a very significant statement in the Reserve Bank annual report when Mr John Phillips was Deputy Governor, and that report clearly demonstrated how the government strategies were failing and were wrong, and, of course, he was proved totally right.

  What interests me in the present situation is that page 15 of the Reserve Bank report clearly raises some serious concerns about the policy of the present government as evidenced in this budget. One can see this very clearly, despite the very cautious language that the Reserve Bank uses, because it deals with the need for getting a sustainable, sound, proper recovery and a higher rate of growth than has taken place in recent times when, as we all know, we have had a rate of growth that has been inadequate to provide job opportunities for all Australians. We now have this appalling unemployment rate of around 11 per cent which will continue pretty much as it is under this budget. But the Reserve Bank report says:

How to achieve and sustain higher rates of growth is the challenge for today's policy-makers.

I might interpolate there on the criteria the Reserve Bank establishes; this government fails that challenge. The report goes on:

For the moment, winding back the consequences of excessive borrowing in the late 1980s is proving to be more protracted than expected.

The report says:

Australia has many inherent advantages, not least natural and human resources, political stability—

I suppose one could call `political stability' a little questionable at the moment—

quality infrastructure, and proximity to the fast-growing Asian economies.

The report goes on very significantly to say:

Turning those advantages into a successful and sustained growth performance, however, requires a number of additional elements.

From the Bank's point of view, one which looms large is a stable price framework. This is essential—

Not just important, nice or something to aim for, but essential—

if we are to hold the gains on competitiveness and generate the quality investment necessary to increase future output. Monetary policy carries much of the responsibility here, although other policies (such as wages and taxation policies) can make monetary policy's job more or less difficult.

So what has this government done? It has made its job more difficult. It has done its damnedest to destroy the low level of inflation which has been achieved through blood, sweat and an 11 per cent unemployment rate. Under this government's budget the inflation rate, as measured by the consumer price index, will rise from one per cent to 3 1/2 per cent, and other indicators of inflation will also rise substantially as a direct result of this budget. This will also be assisted by the decline in the Australian dollar which has emerged basically through economic mismanagement which has yet to flow through fully to the inflation rate because, as the Australian dollar goes down, so the cost of imports goes up.

  The Reserve Bank is saying that it is essential that the government maintain inflation at the lowest possible rate and the government, in order to `keep' its phoney election promise about reducing income tax, has put on all these other taxes which put up inflation. In other words, the government is putting up taxes which are exactly the opposite to the ones the Reserve Bank says are needed in order to pay for its phoney election promises. It can only cut taxes by increasing taxes. That is what the government has done.

  What it has done provides a far greater increase in inflation without any of the offsetting benefits that were involved in the GST, which the government so strenuously attacked and on which it based its dishonest and disreputable return to office. The scare campaign is now shown to be phoney because the government itself is introducing a series of tax rises which, despite what Senator Gareth Evans says, will be a major factor in the increase in the cost of living from one per cent to 3 1/2 per cent and is in breach of the Reserve Bank's essential requirement to have a stable price framework. The Reserve Bank report says:

On its own, however, price stability will not guarantee faster growth.

There are a few other factors. The report goes on:

The main requirement for higher sustained growth is higher investment.

But, of course, we are not getting higher investment. We have the lowest investment levels here in Australia since how long? According to page 7 of the Reserve Bank report:

Equipment investment too has suffered a large fall and, as a share of GDP, has been lower than at any other time in the past 40 years.

This is the great, able, and competent `Australia's best Treasurer' bringing about this disaster. The report continues:

. . . the private business sector's capital stock appears to have declined . . .

The report says:

Given these conditions, strong growth in business investment could occur as the negative influences are lifted.

What we need, of course, is confidence? Are we going to get that confidence? The Reserve Bank report says:

Equipment investment appears to have bottomed, although there is little evidence yet of the rebound necessary to restore the economy's productive potential. Continuing uncertainty about the state of the world economy is a dampening factor, as is the large overhang of unused capacity in many areas.

So, according to the Reserve Bank, there are certainly problems facing us on that score. On page 15 the report states:

The missing factor is the confidence to expand in anticipation of future sales and profits. This in turn depends on various factors and cannot be drummed up easily; it will, however, be responsive to policies which are generally supportive of growth, and which minimise impediments to investment and hiring decisions.

So what has the government done in the budget? It has belted some of those industries, such as the wine industry, that are seeking to invest, expand and export more. In fact, the wine industry is probably the fastest growing export industry in Australia and, as a wine spokesman said in this morning's media, `There is no other wine industry in the world taxed as heavily as the Australian wine industry'. Yet, under this extraordinary budget, the wine industry is expected to compete in world markets, having just been belted in its domestic sales, which are the base on which its exports can be developed. Do we see anything in this budget which is generally supportive of growth and which minimises impediments to investment and hiring decisions? The answer is no, we do not. The budget fails on that ground. The Reserve Bank report continues:

Financing that necessary investment raises some critical issues. Rapid and sustainable growth tends to be associated with countries with high saving rates. While a temporary fall in savings by both households and governments in the recession is normal, Australians—both as individuals and through their governments—need to lift their savings performances over the medium term.

What is this government doing? We are going to have the highest approach to the market by the governments. Under this government we are going to have the highest level of government borrowing requirement for 10 years. So there is dissaving by the government, more borrowing by the government.   Even more significant, the household saving rate, which was 7.2 per cent in 1991-92, and which declined to 6.1 per cent in 1992-93, will go down under this budget to 4 3/4 per cent. So we have exactly the opposite occurring in an area that the bank says is critical—`rapid and sustainable growth tends to be associated with countries with high saving rates' and `there is a need to lift the savings performance'. Instead of that, under this budget the savings performance is worsening. We clearly have a situation where the Reserve Bank is in disagreement with the fiscal policies of this government. The Reserve Bank report goes on:

Compulsory superannuation can help—

that is, in terms of lifting savings rates—

But these arrangements work best where employees accept lower current consumption standards in return for higher future incomes; attempts to realise higher living standards at both points in time by-passing the cost onto employers will risk dissipating the potential gains from savings through higher prices.

Under the budget, average weekly earnings in the four quarters to June next year are expected to rise by four per cent. So on almost every score of what are the essential elements of real, sustained recovery from the recession, this government's policies, as evidenced in the budget documents, are a failure. They fail to meet the Reserve Bank's requirements. I must say, I am particularly grateful to the Reserve Bank for being so frank in this case about what it sees as the requirements for getting Australia out of its present mess. In this Reserve Bank report there is a clear warning to this government about the impact on inflation of the declining Australian dollar. The report says, for example:

Over May and June 1993, the TWI [trade weighted index] fell by a further 5 per cent, which implies some further rise in import prices and import valuation effects. The continuing slack in product and labour markets should assist in coping with the short term inflationary consequences; whether there is any lasting impact on the rate of inflation will hinge largely on wage outcomes.

So here is the government, having just enraged the ACTU with its taxation attack on lower income workers, expecting to get cooperation from the ACTU in the essential area of holding down wage rises. What the Reserve Bank has revealed yet again is this government's monumental economic incompetence. It is unfortunate for the Australian people that, unless there are changes of a significant nature, this nation is going to have to put up with this economic bungling for another three years. I seek leave to continue my remarks later.

  Leave granted; debate adjourned.