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Tuesday, 8 March 2005
Page: 28

Senator SHERRY (2:30 PM) —My question is to Senator Minchin, representing the Treasurer. Is the minister aware that Australia’s net foreign debt increased dramatically to $422 billion in 2004, more than double the level that the Howard Liberal government inherited? Is the minister aware that the credit rating agency Standard and Poor’s cites foreign debt as the main risk to Australia’s credit rating and a key risk to government finances? After nine years in office why doesn’t this Liberal government have any plan to tackle the foreign debt, which now equates to $21,000 for every man, woman and child in Australia?

Senator MINCHIN (Minister for Finance and Administration) —I thank Senator Sherry for the question. As I say, we appreciate the fact that the opposition has finally focused on the economy. We have obviously acknowledged that the current account deficit which Australia is running is something we would rather was not as high as it is, but you have to examine why it is at the level it is at. I note in particular the reference by the International Monetary Fund in its recent report on Australia. It says that the widening current account deficit ‘mainly reflects the sharp appreciation of the Australian dollar and the relatively strong cyclical position of the economy’. These are the fundamental underlying reasons for our running a relatively high current account deficit, which obviously means that foreign debt is increasing.

The Australian dollar has been relatively high, which obviously means that imports are cheap and it is tougher for exporters. We do have an imbalance in that the Australian economy has been running at a stronger and faster growth level than have those of our major trading partners. Therefore there is pressure in relation to our export markets with the Australian economy still running strongly and sucking in imports. So it is an inevitable consequence of having an economy that is strong.

That is what the Labor Party do not quite understand. They ignore all the good things about the economy and, in their desperation, try to find things that they think are not so good. These things are again evidence of growing pains. When you have a fast-growing economy, inevitably demand exceeding supply will spill over into the current account. There are a couple of critical things. The first is to make sure that the economy is as flexible and productive as possible so that you ensure that, to the extent that demand is running strongly, the domestic economy can meet supply demands. That is why we keep bringing to this parliament ideas and proposals to reform the economy and make it more flexible. The hypocrites opposite have spent nine years—

The PRESIDENT —Order! Will the minister withdraw that word; it is unparliamentary.

Senator MINCHIN —I am happy to withdraw it if it offends the poor darlings on the other side who are so sensitive that they cannot stand the slings and arrows of political debate. Those opposite, as I have said, have opposed in this parliament virtually every proposal we have brought forward to make this economy more flexible, more dynamic, more productive and therefore more capable of ensuring that we keep some control over the current account deficit. If they have had a complete change of heart and if they are now going to support the measures that we bring forward to make this economy more flexible, we welcome that. That would be terrific. We would gladly have them on board if they are going to join us in ensuring that we can do that.

The other thing you have to do when the economy is running a current account deficit of this kind—and with growth that is producing that current account deficit—is to ensure that the government’s finances remain in surplus. The great achievement of this government is to reverse the disastrous fiscal situation we inherited, to return the budget to solid surplus and to ensure that the federal government is making its contribution to the economy by net savings. But again we have an opposition which, on virtually every occasion and in every budget, opposes any measures we bring in to constrain government spending, or demands that we spend more. Every shadow minister comes out with a press release saying, ‘This stingy government is not spending enough on X, Y and Z’—fill in the blanks. Again, we would welcome the opposition joining us in ensuring the fiscal discipline that is required in the situation where we do have a current account deficit.

Senator SHERRY —Mr President, I ask a supplementary question. My question related to one of the increasing number of bad indicators of the economy, which is the ever-increasing level of foreign debt. Isn’t the minister aware that the OECD has warned the government that high current account deficits put upward pressure on interest rates? Does the minister accept that unless the current account deficit and the resulting foreign debt are reduced, interest rates will have to rise further?

Senator MINCHIN (Minister for Finance and Administration) —Senator Sherry is missing the point. The responsibility of the government in these circumstances is to ensure that it minimises any pressure on interest rates by ensuring that it is making no contribution to the current account deficit, which it is not because it is saving. We are saving through the strength of our surpluses, which they always attack. Whenever we have a big surplus they say, ‘The surplus is far too big; the government should go and spend it all.’ Then of course they try and turn it around and say that we are spending too much. The opposition has no clarity on this—no form whatsoever. It does not understand the nature of the economy and the nature of the responsibility on the federal government to continue to run high surpluses so that it is not contributing to any pressure on interest rates. The Governor of the Reserve Bank has made it quite clear that he accepts the veracity of the fiscal position of the federal government and that it is not putting any pressure on interest rates.