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Thursday, 10 March 2005
Page: 138

Senator SHERRY (4:29 PM) —At the request of Senator Ludwig, I move:

   That the Senate—

(a)   notes the deterioration in the economy including the record current account deficit of 7.1 per cent of gross domestic product (GDP), record net foreign debt of $422 billion, the negative household savings ratio and among the lowest GDP growth rates of the advanced economies; and

(b)   calls on the Government:

(i)   to acknowledge that there are severe economic imbalances in the economy that threaten to push interest rates still higher,

(ii)   to implement policies that will lift the productive potential of the economy,

(iii)   to invest in skills development to ease skill shortages which are now at 20 year highs, and

(iv)   to support infrastructure investment to ease capacity constraints and inflation pressures and promote exports.

This motion, relating to various serious aspects of the Australian economy, is an important motion for the Senate to consider today. The motion notes the deterioration in the economy, including the record current account deficit of some 7.1 per cent of gross domestic product, record net foreign debt of some $422 billion, a negative household savings ratio, and amongst the lowest growth rates of any advanced economy in the world. There are a range of issues that I, on behalf of the Labor Party, ask the government to consider to assist in dealing with the deteriorating economic indicators that we have seen—not just with the release of the national accounts last week and the announcement of an increase in interest rates by the Reserve Bank. Some of these indicators have been around for some time, but I will go into more detail later.

I do want to acknowledge the participation in this debate of my good friend and colleague Senator Cook, who is retiring on 1 July and was a dynamic, high energy, visionary minister in the former Hawke-Keating government—and I will make a little reference to its performance shortly. The Howard Liberal government has been very fortunate in many respects and many aspects of the Australian economy. In 1996, some nine years ago, when the Liberal government was elected, it inherited an economy with, to steal a description, ‘a fully reconditioned engine and a tank full of petrol, ready to move from cruise gear into overdrive’. In fact, it was the current Prime Minister, Mr Howard, who admitted in a radio interview back in 1996, ‘We have inherited basically a sound economy.’

Senator Coonan —We just had a $10 billion black hole.

Senator SHERRY —We will get to this so-called black hole—as Senator Coonan interjects on behalf of the government—shortly. And I will remind you about another big black hole that we inherited back in 1983, if we want to go back through history. In 1996, Australia was at the top of the growth table when the current government was elected. Many of the significant reforms, big reforms, undertaken by the Hawke-Keating government were beginning to pay off. The government, over the last nine years, has generally been very fortunate with the international backdrop. Globally we have had the lowest inflation and the lowest interest rates since the 1960s. Australia has had its best terms of trade in some 30 years, and also we are fortunate in our trading relationships with countries such as China, which is a very strong economy with economic growth rates of eight or nine per cent. In the Hawke-Keating period a great deal of time and effort went to developing those economic trade relationships.

Unfortunately, the Howard Liberal government has not used the last nine years of generally good times to make provision for the future, and our prosperity is at risk in some areas. We have become a very low-saving, consumption driven economy, not a production driven, wealth-generating economy. Our current account deficit—the deficit of our import bill over our export bill—is enormous. Our exports have been, in fact, flat-lining. Australia as a whole has not been paying its way.

The government, whenever it has got into a little bit of economic heavy going in the last nine years, has played the blame game; and I return to Senator Coonan’s earlier comment about the inherited so-called Beazley $10 billion black hole—a little bit of history. I can remember back to the 1983 election of the Hawke-Keating government, to the then Treasurer, Mr Howard, who left the newly elected Labor government with a $22 billion budget deficit. So if we want to go back in history and look at the current Prime Minister’s performance, let us have a look at his performance when he was Treasurer. In fact, that deficit—truly massive by any standard—was covered up by the current Prime Minister, then Treasurer, Mr Howard. He covered it up and it did not come to light until after the election.

This government has been fond of playing the blame game. Whenever it gets into some difficult waters with the economy, it is always someone else; it is always the former Labor government. Here we are, nine years on, and it is the former Labor government’s fault. Or it is the Asian SARS crisis, or it is the global economy, or it is state governments, or it is oil prices, or it is a high dollar, or it is a low dollar, or it is the unions, or it is China, or it is Russia, or it is Argentina. There is always a range of excuses trotted out. The fact of life is: this government has boasted, arrogantly at times, when there have been good economic indicators, and it takes all the credit. So if you boast when times are good, you cannot absolve yourself from responsibility when times are bad and there are some bad economic indicators. You cannot claim the credit in the good times and then say, ‘It’s nothing to do with us if there is a problem in the bad times.’ We saw it again today in question time.

Senator McGauran —Are the workers suffering?

Senator SHERRY —Workers have just suffered, Senator McGauran, because their families have just been hit by an increase in interest rates last week. You ought to ask workers about that, and also ask them about the increase in private health insurance costs. I will not get drawn into responding to interjections from the National Party. We know what they count for—the doormats of the coalition. Really, they have got less influence than anyone in the government. They just get trampled on by the Liberal Party. What we have seen over the last nine years is an arrogance and a deep complacency—

Senator McGauran —We work on it every day.

Senator SHERRY —I do not know what the National Party has been working on but they have next to no influence whatsoever. Because this government has been complacent over the last nine years it has squandered opportunities.

As I said earlier, there have been worrying signs for some time about critical aspects of the economy. We certainly saw some very worrying figures last week. For some years now we have seen a build-up in the current account deficit, the national debt and household savings. Look at last week’s national accounts in respect of household savings—and I have spoken on this issue a number of times in the Senate and drawn it to the attention of senators. On this set of statistics, household savings have been in the negative every quarter back to 2002-03 by billions of dollars. The government try to say, ‘We’ve taken care of our debt; the budget is in surplus.’ They try to separate themselves from any responsibility for the growing level of household debt.

This has very serious consequences for the economy. This economy has had negative household savings for approximately the last five years. Look at the graphs. That is a very serious problem because it means that the household economy has been consuming and not saving. For a government that talks the talk—it does not necessarily walk the walk—about the ageing population, that has very serious long-term consequences. The lack of household savings feeds into our national debt and it also feeds the growing proportion of our economy that is being bought from overseas. That in turn feeds into, for example, the massive increase in dividend payments that are flowing out of the country, which in turn feeds the current account deficit.

This is a government that is focused on short-term fixes. When it is not blaming everyone else for a particular problem, it focuses on short-term political fixes. We saw this in the run-up to the last election. We saw an absolutely massive vote-buying spree—some $66 billion of various policies. As a consequence of this $66 billion in expenditure rolled out by Mr Howard—

Senator Ferguson —Which one would you have cut out?

Senator SHERRY —I recall—it was obviously a background briefing from the Treasurer, Mr Costello—the consternation expressed at the end of the campaign launch of the Liberal Party—not the National Party; they do not have one anymore. The Prime Minister had been given a list of promises—

Senator McGauran —It was a joint launch.

Senator SHERRY —Joint! The National Party do not count for anything. They were not even consulted about it.

Senator McGauran —We will count after 1 July, buddy!

Senator SHERRY —We will see whether you count for anything. You have not counted for anything for years and I doubt you will count for anything then, Senator McGauran. The Prime Minister was handed a list of promises to pick from and read out at that election campaign launch by, I think, the Treasurer. They were expecting one or two from a list of 12 to be picked out but he read the entire list! It is amazing what this government has been doing in terms of promises, handouts and short-term fixes.

I refer now to a former member of the Liberal Party—I do not know whether he is currently a member of the Liberal Party—and I am not overly critical of him because I have a great deal of respect for this economist, the ANZ’s chief economist and one of Australia’s leading economists—

Senator Ferguson —You read your news clips today, Nick!

Senator SHERRY —He was here last night giving a briefing, as well. I know Mr Eslake; I went to university with him. He was studying economics at the University of Tasmania—and at that time he was a member of the Liberal Party. He is a distinguished former Tasmanian. He makes this point:

The national accounts [released on Wednesday] show that in 2004, real Government own-purpose outlays, excluding payments to the states, interest and defence spending, grew more than 10 per cent. That was the highest rate of growth in any calendar year since the Whitlam era, with the exception of one year—

Guess which year—

1983—when the Fraser government was trying to buy its way into a fourth term of office.

Who was Treasurer in 1983? The current Prime Minister, Mr Howard. I was challenged to give an example of some of these election promises. Let us look at the technical colleges. We are now duplicating technical college facilities in this country. We have state technical colleges and now we are going to have Commonwealth technical colleges. There will be a new layer of bureaucracy and presumably duplication of technical facilities. This is a government that does not have the resolve or the determination to tackle the longer-term issues that need to be tackled to ensure an economy with long-term growth that is sustainable. It has allowed investment in infrastructure to decline. It has not invested in skills development and it has delivered historically high and rising taxes. This is Australia’s highest taxing government.

Senator McGauran —Before or after the GST?

Senator SHERRY —Ah, the GST. I can recall the argument—amongst other arguments put forward—that we needed a GST because the tax system was broken. If we look at the income tax being collected from the so-called broken tax system, we can see that it has reached record proportions. There was a reference to this in the OECD report that there was some discussion about in question time today. The Liberal government and the Treasurer, Mr Costello, had delivered—

Senator McGauran —The coalition.

Senator SHERRY —The coalition. They had delivered Australia’s highest taxing government and then decided to spend some $66 billion in the run-up to the last election to deal with, in many areas, short-term political fixes. If we look very briefly at some of the figures that were released last week, the current account deficit has doubled to $54 billion or 7.1 per cent of gross domestic product. That is an all-time record. I know there was some reflection on the ‘banana republic’ comments of Mr Keating, but a figure of 7.1 per cent of gross domestic product as a deficit is a truly staggering figure. I do not know of any other country amongst advanced economies around the world that has anywhere near this type of current account deficit.

Senator McGauran —It is private.

Senator SHERRY —The private debt, Senator McGauran, is still part of Australia. It is still part of the Australian economy, it is still part of an economic problem that has been growing and it is still the responsibility of an Australian government to deal with Australian problems. You cannot simply say, ‘We’ve taken care of government debt,’ and forget all about the mountain—and it is a growing mountain—of the current account deficit, national debt and foreign debt. We heard a lot about this from senators opposite when they were sitting on this side of the chamber some nine years ago.

Senator McGauran —It is different.

Senator SHERRY —Senator McGauran, I have got news for you: foreign debt is foreign debt, and it is a substantial problem for the future of this country. They wheeled out the debt truck—that is one vehicle that really does need some fuel and a reconditioned engine—but we do not see any sign of that now. Foreign debt has more than doubled to $422 billion—another record high. The current account deficit and this level of national debt have important consequences for our economy. I would not expect The Nationals, of all parties, to even understand this. Their contribution to economic debate is rarely heard and then it is never listened to by this government. They are just squashed.

These are very, very important issues. Foreign debt, given our negative household savings, inevitably means we have to import capital in order to sustain that level of debt. In doing so, we have to pay for it. That has meant Australia selling off the farm, to coin a phrase used very often. In order to maintain that debt, you import the capital and you have to sell your assets overseas. That leads to a significant number of problems. One economic consequence is that you are more vulnerable to economic shocks from overseas. Another issue is the increasing level of dividends being paid offshore, which feeds back into your current account deficit. Another issue is that to attract that capital you have to have high interest rates compared to the rest of the world. Again, if you look through the list of 15 advanced economies around the world, including the EU, Australia has the highest level of real interest rates amongst advanced economies at the moment. I have referred to foreign ownership of our land and companies and the problems that that can lead to.

This is a Liberal government that has wasted the opportunity to make a lasting improvement in Australians’ lives in the longer term. It has ridden on the wave of prosperity generated by Labor’s reforms. It has failed to invest in areas critical to the future productive potential of the Australian economy. It has failed to invest, it has been arrogant and it has been complacent. When there is a sign that something is going wrong, after nine years it is all the Labor Party’s fault! After nine years we hear the perpetual broken record. Or there is someone else to blame: it’s the unions, it’s the Senate, it’s the states, it’s SARS, it’s drought. It is one continual list of excuses. The fact is that, if you are going to take the credit when there are good economic indicators, you have to take the blame when there are bad economic indicators. You have to take responsibility. You have to act, and we have seen very little of that from this government. Economic growth is slowing, inflationary pressures are starting to emerge, interest rates are going up, the national debt continues to spiral upwards and the current account deficit continues to increase. These are all very bad economic signs and they are not good for our long-term future and prosperity. (Time expired)