Peter Costello (Higgins, Liberal Party, Treasurer) Share this | Hansard source

I thank the honourable member for Stirling for his question. Today’s Westpac-Melbourne Institute consumer sentiment figures show that consumer sentiment suffered a sharp fall of 16.2 per cent in the month of August. That is the second largest fall on record. In particular, that fall of 16.2 per cent in consumer sentiment appears to relate to the interest rate rise which the Reserve Bank of Australia announced following its meeting on 2 August.

Despite the fall in consumer sentiment in the month of August, the fundamentals of the Australian economy are strong. We have the lowest unemployment in 30 years. We have our ninth surplus budget. We have cleared Labor’s $96 billion worth of debt, and the Australian economy is forecast to grow strongly in the year ahead. Today we also had the labour price index released for the June quarter of 2006. It showed that the index grew 1.1 per cent in the June quarter and is 4.1 per cent higher through the year. This was a little higher than expected, with wage costs rising higher in the public sector than in the private sector. They were 4.4 per cent higher over the year in the public sector; whereas they were four per cent higher over the year in the private sector. Jurisdictions that recorded the fastest growth in public sector wage costs were Queensland, New South Wales and Tasmania.

It is important for the maintenance of a low-inflation environment in the Australian economy that wages are contained and are consistent with productivity growth. We can afford increases in real wages, as long as we have a productivity bonus that backs it up. If there is a productivity bonus that backs it up, an increase in real wages will not necessarily be inflationary. One of the advantages that we have in dealing with strong wage rises at the moment is, of course, productivity, but also we have a much better system of industrial relations than in previous periods. Nothing could be more destructive at the current time than a reversion to centralised wage fixing. The reason for that is that, whilst wage increases might be justified in profitable industries such as the mining industry, any attempt through centralised wage fixation or, indeed, pattern bargaining to bring those wage increases out of highly profitable areas of the Australian economy back into other areas of the Australian economy would be not only inflationary but anti jobs.

That is why it is so important that we now have the Work Choices legislation in place in this country. If Labor had its way and rolled back Work Choices—if we were to revert to a system of awards whereby profitable industries which can afford wage increases become pacesetters for other areas of the Australian economy—we would end in an inflationary surge, which brought on previous recessions that this country could ill afford. Today’s increase, backed by productivity in a situation of improved labour market arrangements, can be handled, although we need to be vigilant. Rolling back industrial relations reform in this country, at this time, would be a major retrograde step by the political party which has done so much to hold Australia back over the last 10 years.

See this speech in context