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Tuesday, 4 October 1983
Page: 1307

Dr THEOPHANOUS(10.25) —I want to make some remarks about the Treasury's role in the determination of macroeconomic strategy and also to reply to some of the comments made in relation to that strategy, especially by the honourable member for Bennelong (Mr Howard) in a variety of speeches presented to this House. Let me say, first of all, that the claim that the Budget was irresponsible and overexpansionary is obviously nothing more than the familiar selfish, singleminded rehetoric we have come to expect from certain established conservative and relatively privileged people and organisations. The fact is that this Budget has reduced the deficit below that which it would have been without any new Labor Government programs. So, all other things aside, how can this be overexpansionary? But if we look closer, the net injection of government spending amounts to only $650m, which is much closer to the kinds of promises that were made by the honourable member for Bennelong and is certainly a reduction on the total promises that we made. Credit should have been given, by the honourable member for the cautious approach. He appears not to be capable of distinguishing reality from rhetoric in these matters.

If it transpires that the Budget does delay our recovery, as the honourable member claims, it certainly will not be because of any overexpansion or lack of importance placed upon a United States of America recovery. It is clear that the honourable member for Bennelong, the shadow Treasurer, looks upon the proposed United States recovery as our potential saviour but gives no specific policies that could maximise the benefits flowing from it other than his familiar belt tightening, low budget deficits and the sort of rhetoric which I noticed dominated the Liberal council over the weekend. That, by the way, will ensure the perpetuation of the Australian Labor Party in power for a long time. The honourable member does not seem to know if the recovery has commenced and for how long it can be sustained. To hinge such a large part of our recovery on something which may never happen-I am talking about a sustained United States recovery-obviously lacks direction and, in my view, is totally irresponsible. Indeed, in my view this Budget has not been expansionary enough to reverse the trend in unemployment, but at least we will not have the 12 per cent to 13 per cent unemployment this financial year which would have been the case if the honourable member for Bennelong had been the Treasurer.

In this context it is important to note that generally the strongest argument against increased government expenditure came not from employers but from within the Treasury and from the Federal Opposition. The main argument relates to the effect on domestic interest rates of an expansion of the Budget. An expansion of the Budget does not necessarily mean an expansion of the deficit. This is something which people seem to have confused. This anti-expansionist school of thought is dominant in certain circles including, unfortunately, sections of the Treasury. The main argument states that the larger the Budget deficit, the larger is the government borrowing requirement, the greater the upward pressure on interest rates and so the greater the extent to which public spending will be offset by reductions in private spending.

This proposition that private spending reductions will follow increases in public spending in a situation of less than full employment is a purely monetarist claim. It is in direct contrast to the Keynesian tenet that, at less than full employment, increases in government expenditure will necessarily produce multiplier effects which will result in increased national income and private savings. From increased private savings further private investment can be financed so that, at least in the short run, private spending will never be fully crowded out. All empirical evidence supports this. The extent to which crowding out occurs will depend on the sensitivity of the bond market to changes in the interest rates. The monetarist notion that public spending increases will be fully offset by private spending may well be valid in a situation of full employment, but it is all but unqualified nonsense in an environment of high unemployment and rapidly contracting investment expenditure. In this regard, the Treasury's ideology has been proved false. Australian interest rates have fallen , notwithstanding a large Budget deficit of $8.5 billion. There seems little likelihood that they will increase in the foreseeable future because, as Treasury predicts, private sector investment will fall by 14 per cent in 1983-84 and so will place no extra pressure on the financial market.

Progress reported.