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Thursday, 6 October 1983
Page: 1424

Mr MOORE(10.55) —In the brief time allotted to this debate, I want to speak on two matters relating to the economy. I wish to point to the problems facing Australia, particularly job creation. We all recall the promises made by the Labor Government to provide half a million jobs. On top of that, I want to look at the economy to see where it stands at the moment. There has been a very substantial destocking. Stock levels in the nation are very low indeed at the moment. However, we will see some recovery in this area in the calendar year 1984. On top of that, we can expect a substantial improvement in the amount of money which will come from the rural sector, which will make a very substantial contribution to the economy. The financial sector will also make a substantial contribution. But, beyond that, job creation will be hard to achieve.

The Government should be looking at two aspects of the economy. They are money supply and exchange rates. At present, growth in the money supply in the Australian economy is very rapid indeed. The money supply is growing at a rate which must be causing some concern to those in authority who have the responsibility of bringing it under control. It is caused in the first place by a substantial government deficit. This money is being pumped into the economy at a rapid rate. It has been supplemented by a substantial capital inflow. This is having an effect in the capital markets of Australia insofar as interest rates, particularly at the short end of the market, have decreased dramatically. This has stretched the yield curve into a more reasonable shape than it has been in for a number of years. This is just as well, because the length of the Australian Government debt has shortened dramatically. Unless investors can be forced into taking five year to 10 year bonds, the Government will be faced in the next three years with the massive problems of redeeming substantial amounts of government paper which will almost be in a cash position. The advent of this substantial capital inflow has altered the yield curve and has made prospects of investment in the five year to 10 year bonds far more sustainable.

On top of that, intermediaries, particularly the merchant banks, have been taking a very great interest in arbitrage in terms of borrowing abroad and funding into the Australian market. As a consequence, we have seen the funds of well known investments such as the cash management trusts sink below the levels at which they have been for the last 18 months to two years. Indeed, these levels have sunk below the Australian savings bond rate which has been the bench -mark of ordinary household collection.

At a time when the domestic use of money is appalling, domestic savings are high. As a consequence, the Government must find ways of getting those savings into the system to finance the huge deficit it faces not only this year but also next year and the year after. There has been no attempt in this Budget to alter the structural balance of the economy. Because of that I can assume that there is no will by the Australian Labor Party to attempt to do so. At the moment, we can expect the prospect of a substantial growth in the money supply and sharp alteration in the yield curves and a determination by some to look at the question of investment in Australia.

That brings us to the question of the exchange rate. It is in that area that most leverage can be imposed on foreign investment. We all noticed that when the Labor Party came to power it devalued the dollar by 10 per cent. The winner was the smart money which move beforehand and which was rapidly brought back into Australia within a matter of weeks. Since that point the American dollar has changed its perspective in terms of the international monetary markets. As a consequence, the American dollar has started to depreciate against world currencies. The reason for that is that the United States Federal Reserve has substantially tightened the growth in the money supply in that country. At the same time we have seen the effect of the very large balance of trade deficits that the American economy has been running. Because of that, pressure from within America will bring down the exchange rate of the American dollar and will attempt to make its currency more competitive. This will have the effect of forcing up the exchange rate for the Australian dollar. Of course, higher exchange rates for the Australian dollar will once again affect the job market and the profitability of corporations in the export field. The Australian manufacturing scene will feel the increased competitive pressure and so pressures on jobs in that area.

On top of that, I suggest that we look at the level of foreign reserves which are currently being run by the Reserve Bank. They are of the order of $11 billion to $12 billion. I suggest that it might be wise for an exchange rate position to be taken which would allow some of these reserves to run down which would take some of the excess liquidity out of the system. Failure to do this in the next three months to six months will lead only to increased inflation and prices within the nation. A monetary policy which is allowed to run unchecked- particularly in view of the very high levels of liquidity that we have at the moment-will inevitably lead to higher prices which will in turn inevitably lead to higher wage demands. These will bring about a very sharp impact on the prices and incomes accord on which the Government places so much importance.

In summary, I point to two critical factors at present. The first is the excess money supply within the system and the need to ensure that this is taken up and certainly met by the $4 billion that is yet to be raised by the semi-government borrowings and the $3 billion to $4 billion yet to be raised by the Commonwealth sector and the sheer fortune that the Government has, in that area, through very limited corporate demand. The other factor is the exchange rate, which will inevitably push upwards as the American dollar falls and the effect that that will have on the Australian economy in terms of its competitiveness, its ability to create jobs and its ability to pull itself out in terms of international competition. Given those warnings, I think that there is a lot to be done in terms of management of the Australian economy.