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Thursday, 10 March 2005
Page: 146

Senator ALLISON (Leader of the Australian Democrats) (5:06 PM) —I rise to speak to Senator Ludwig’s notice of motion No. 93. An uninformed person reading that motion might get the impression that Australia is an economic disaster. The notice of motion reads a bit like a tale of doom and gloom that Edgar Allan Poe would be proud of. The reality, of course, is much more positive: Australia’s economic performance is the envy of the Western world. Last month the OECD released their annual report on the Australian economy and they were particularly complimentary of Australia’s record of economic reform during the past 10 years, a period in which the Democrats played a key role in both industrial relations and taxation reform. The OECD report says:

In the last decade of the 20th century, Australia became a model for other OECD countries in two respects: first, the tenacity and thoroughness with which deep structural reforms were proposed, discussed, legislated, implemented and followed-up in virtually all markets, creating a deep-seated “competition culture”; and second, the adoption of fiscal and monetary frameworks that emphasised transparency and accountability and established stability-oriented macro policies as a constant largely protected from political debate.

The OECD report recognises the benefits that these structural changes have achieved, stating:

Together, these structural and macro policy anchors conferred an enviable degree of resilience and flexibility on the Australian economy. The combination resulted in a prolonged period of good economic performance that shrugged off crises in its main trading partners as well as a devastating drought at home. The short-term outlook is for continuing strong growth of productivity and output, low inflation and budget surpluses accompanied by tax cuts.

I think the reality of the Australian economy is somewhere between the ‘sky is falling in’ approach of Senator Ludwig’s motion and the glowing with pride ‘all is fine’ commentary that we are hearing from government senators in this place.

The positives are very obvious. Australia has its lowest unemployment rate in 27 years. An unemployment rate of about five per cent was once thought to be virtually impossible to achieve, but again today’s monthly figures show unemployment is steady at 5.1 per cent. Another 20,000 people are employed, increasing the participation rate and pushing the number of employed Australians close to the 10 million figure. Offsetting that good news, of course, is the fact that we have seen an increase in low-income jobs, particularly for women—something I mentioned earlier this week in the chamber.

The Australian economy has, however, grown steadily for the past five years and we have not had the recessions that have been faced by the United States, by Japan and by most of Europe. During this time the Treasurer has been stashing away budget surpluses. We are estimated to have a $10 billion surplus this financial year. The Democrats would like to see sound proposals to invest this additional money in our hospitals, schools and infrastructure, and we have said many times in this place how we would like to see that happen. Unfortunately, I think that is unlikely. The expectation is that the Prime Minister and the Treasurer will give another—yet another—exclusive tax cut to high-income earners. We say that that tax priority is all wrong.

The latest OECD tax figures, released today, show that low- and middle-income families face unfairly high effective marginal tax rates. This problem takes away the incentive for people to get off welfare or to get back into the work force and simply takes money out of their pockets that they need for things like feeding their children. For every extra dollar that a middle-income earner gets, the OECD report recognises that they will keep less than 40c. Of the $1 they earn, over 60c goes to the federal government in income tax and clawbacks in family payments.

In last year’s budget, the government gave $14.7 billion in tax cuts; that was to only those earning over $52,000. Our preference has always been to help all Australian taxpayers. With this $14.7 billion we calculated that every Australian could have received a $10 a week tax cut. Instead, the ALP supported the government in giving $42 a week to the highest income earners and nothing—absolutely nothing—to low- and middle-income earners. Our tax system starts taxing people when they earn more than $6,000. That is half the level of the poverty line, or what you might call the subsistence income level. The Democrats say it is time that we adjusted that; it is crazy that Australia imposes tax on people who live below the poverty line of around $12,500, much less people who earn half the amount of the poverty line. It beggars belief that we would do this to people on such low incomes.

Despite all the good economic news, there are some very serious clouds on the horizon. The government cannot possibly deny the first part of Senator Ludwig’s motion that notes the state of our current account deficit and the fact that net foreign debts are at record levels. Net foreign debt is now $422 billion, or 49.2 per cent of GDP. It averaged only 34 per cent of GDP during the Hawke-Keating government and seven per cent during the Fraser government. The current account deficit is now running at $15 billion per quarter, or 7.1 per cent of GDP—a huge figure in anyone’s calculations. To put this in context, the current account deficit averaged only 1.4 per cent of GDP during the Whitlam government and 4.6 per cent during the Hawke-Keating era.

We are not the only ones who are worried about this. The Reserve Bank has also raised concerns about the high level of the current account deficit, which is above that which prompted former Prime Minister and Treasurer Keating to warn that Australia was becoming a banana republic. The current Prime Minister last month said:

I am not the least bit pessimistic about our capacity through export performance to reduce the imbalance and what is … a very large current account deficit over a long period of time.

Unfortunately, the Reserve Bank is not quite so optimistic, noting that ‘growth in Australia’s export volumes has remained weak over the past year or so, despite the growth in global demand and world commodity prices, with total exports virtually unchanged from four years ago’. It is little wonder that just in the last couple of days the Treasurer has been talking about doubling the output from Olympic Dam, but even that will not make enough difference—even if it was a good idea in the first place, which it is not.

The economists tell us that the numbers themselves do not necessarily reveal the true impact of the current account deficit on interest rates. If the capital inflows allow Australians to invest in new plant and equipment, social and economic infrastructure and education, and research and development, in the long term this will improve Australia’s trade performance. This is the so-called J-curve.

Unfortunately, this government has reduced spending on education and long-term research and development. At the same time the state governments have reduced their infrastructure expenditure. Instead, the capital inflows have funded consumer spending and the property investment boom. Neither of these items improves our current performance but they have been encouraged by the government’s tax cuts for high-income earners, negative gearing, capital gains tax concessions and, of course, the $66 billion of budget bribes that we saw at the last election. Consequently, the Reserve Bank have warned that we are likely to face further increases in interest rates to cool rampant consumer spending and reduce inflation. The Australian Democrats do not want to see higher interest rates or a slowdown of our economy. The only way to improve our trade predicament is to boost exports. The Australian government has to make that happen.

Senator Cook interjecting—

Senator ALLISON —Unfortunately, Australia’s trade figures will continue to get worse as a result of January’s tariff reductions for imported cars, clothing and other goods, which no doubt, Senator Cook, the ALP will support. Their policies of winding back export market development grants, reducing incentives for research and development and reducing tariffs have contributed to Australia’s poor trade performance. The Australian Democrats have policies that will improve Australia’s trade performance. We are prepared to share our ideas, as always, with the government.

Firstly, we would recommend freezing further tariff reductions unless they are matched by our trading partners. We would restore full funding to the Export Market Development Grants Scheme. We would like to see a review of business taxes and capital gains tax to encourage longer term productive investment rather than short-term speculation. We would also restore the tax deduction for business research and development to 150 per cent. We would put more money into public education and training to address Australia’s skills shortage. Finally, we would improve the low participation rate of women in the Australian work force by promoting more family-friendly policies, such as paid maternity leave, flexible workplace practices and low-cost child care.

The Democrats believe that the Howard government should include improving Australia’s export performance as one of its key priorities for its fourth term. Unless there is significant structural reform to improve our trade performance, the legacy of the Howard-Costello government may be a banana republic with high interest rates and a dangerously unbalanced economy. Having said all that, we do not subscribe to the ‘sky is falling’ mentality. There are clouds on the horizon for the Australian economy but we believe that the ALP should acknowledge the very good performance of the Australian economy over the past decade and that if we put in place the proper measures to make sure this continues then the outlook can be very positive.