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Thursday, 6 October 1983
Page: 1430

Mr DRUMMOND(11.33) —Reaction to the 1983 Budget has centred very much on its effect on individuals and interest groups. This is very understandable but, in the process, we lose sight of the economic overview. This Budget has been praised largely for what it does not do. We have indeed been spared the vicious and disastrous forays into capital taxation that the Minister for Industry and Commerce (Senator Button) continues to advocate. In return, the electorate is expected to overlook the dishonouring of the promise to cut taxes made by the Prime Minister (Mr Hawke). The lack of reduction in personal income tax, together with the present and future rises in indirect taxes, cannot but increase the taxation burden on the ordinary family. Perhaps it is a measure of public cynicism that people expected this promise to be broken anyway. In passing, however, I note that the voters in the south-west of Western Australia and the nation as a whole will be far less forgiving if this Government breaks its promise to avoid new taxes on capital.

While the Treasurer (Mr Keating) may deserve some credit for resisting the demands of the lunatic Left, the fact remains that he has given us a Budget which shows a lack of imagination that is not matched by true fiscal responsibility. In making this statement I commend to the attention of the House page 70 of Budget Paper No. 1 which is the final page of the Budget's economic overview. We are all aware that this is not the work of the Treasurer but of his chief secretary. Quite clearly, this shrewd, able servant of the Australian people has little faith that this Budget will work.

He spells out that only the private sector can generate recovery and that an expanding public sector will put pressure on interest rates. Wage rises above the 7 per cent so confidently assumed by the Government will affect corporate profitability and cause unemployment. Mr Stone is obviously sceptical that the increased Government borrowing needed to support the Government's projected deficit can be financed without pressure on interest rates. Unlike the Treasurer , he knows that economic recovery will result in an increased demand for private finance that could in turn inhibit this very recovery. Mr Stone notes also that even the most optimistic inflation forecast of this Budget puts Australia above the inflation levels of its major trading partners and makes us economically uncompetitive. It is sobering to realise that only two years ago our inflation rate was significantly below that of other Organisation for Economic Co- operation and Development countries.That one page of honest observation shows up the hollowness of the Hawke Government's rhetoric. John Stone has told us that we are flying on a wing and a prayer, totally dependent on the goodwill of the Australian Council of Trade Unions and on the strength of Ronald Reagan's United States recovery. For all the rhetoric of spending restraint, we are faced with a Budget deficit of $8 billion, or 4.7 per cent of gross domestic product. This is the highest ratio of deficit to GDP since 1975. Despite the overrun caused by worsening depression, the 1982-83 Budget deficit was held to 2.8 per cent of GDP . Moreover, this projection of 4.7 per cent depends on a favourable outcome. Should receipts fall and unemployment rise further than the enormous level of 680,000 so casually predicted in the Budget Papers, the deficit will explode and recovery will be torpedoed. The Hawke Government cannot say that it has not been warned, and in its own Budget Papers.

The same warnings are echoed in an equally sober assessment by the Economic Department of the Westpac Banking Corporation. Its September review questions the wisdom of a large deficit when private sector activity is increasing in response to the Western world's recovery. This will lead to the private and public sectors bidding up the price of financial resources. Again, the point is made that this will push up interest rates and inflation. The Westpac analysis makes the point that the Government is trying to conceal the fact that the forecast rise in the consumer price index of 7.5 per cent results from an artificial reduction in the CPI by three percentage points because of Medicare. Health care costs will no longer be counted, even though the taxpayer will still be meeting them. The rate of inflation will thus be understated, and in real terms will be at least 10 per cent in 1983-84. When the Budget predicts a 14 per cent growth in our nominal gross domestic product but a three per cent growth in real terms, we do not have to be brilliant mathematicians to work out what the real inflation rate is likely to be. Like John Stone, the Westpac report questions a strategy so dependent on the accord with the unions. We have seen how some unions in building, oil, petrochemical and food processing industries have obtained actual or disguised wage increases outside the system. The report states that, should this be the start of a process whereby wage rises outstrip the seven per cent prediction:

the biggest danger is Australia's recovery will be of the Hot-house variety, narrowly based on stock turnaround, higher rural incomes and exports, force-fed by government spending and excessive wage growth, and intrinsically unstable.

In relation to the growth in outlays and consequently in the deficit, the report goes on to say:

By deliberately setting out to force-feed economic growth in the year ahead, the Government may well have truncated Australia's longer-term growth prospects.

In short, the Treasurer may deserve some marks for his sense of political and social reality in rejecting the socialist Left's solutions for the present, but he has failed sadly in the task of far-sighted economic management. It looks to me as though he has got it all wrong. I must reiterate the fact that this is a big spending Budget with outlays up by 7.2 per cent in real terms, or 15.8 per cent in raw figures. This is the highest jump in any one year since spending went up by nearly 20 per cent in real terms in the lunatic exercise of the second Whitlam Budget of 1974-75. Federal government expenditure has been raised to a new height of 31.6 per cent of gross domestic product. As Mr Stone has pointed out, this is the sort of big spending that simply crowds out the private sector.

The Government's lack of imagination in its first and vital Budget will contribute to the pressures likely to upset its projected outcome. The indexing of excises, especially as regards petrol, will produce an understandable demand for wage rises when they are not offset by reform of income tax. The sleight of hand over the CPI, with the artificial removal of the health care component, will not remove the ultimate cost to the family budget. Again, there will be pressure for wage increases as Medicare becomes established. Moreover, the fiddling of the CPI will be felt by age pensioners who will find that their pension rises next year will be smaller although overall living costs may be up by substantially more than the nominal CPI. This negative Budget will, I believe , prove positively detrimental to the sustained recovery needed to make Australia truly competitive and to get Australians back into real jobs.

I believe that any recovery that this nation is experiencing and the enthusiasm held by big business and others for the future relate to action taken by the previous Government, world events and the elements. The previous Government's decision and the nation's response to the wage pause, which has helped dramatically over the last few months, the Western world's apparent gradual recovery and the breaking of the drought are three key elements as to why we are enjoying a far happier economic situation that we were 12 months ago. I do not believe that this Budget, which the Government claims has led to the enthusiasm and the optimism that is apparently abroad today, has much to do with it. The responsible actions taken by the previous Government have led to this present healthy situation.