Craig Emerson (Rankin, Australian Labor Party) Share this | Hansard source

The report before us entitled Review of the Reserve Bank of Australia annual report 2005 (second report) and the accompanying statement of monetary policy released by the Reserve Bank on 13 November 2006 tell a tale of economic mismanagement. We have a situation now where interest rates have increased on four occasions since the election in 2004 when the Prime Minister made a commitment to keep interest rates at record lows. The Australian people believed him at that time, but they will have learnt that he is not to be believed. Not only have there been four interest rate increases since that time but the statement of monetary policy points to the possibility of a further interest rate rise some time in the new year. I will expand on that by reference to the statement of monetary policy.

The problem is that the government has not been successful in easing capacity constraints. It has been spending like a drunken sailor and fuelling consumption spending in this country. So, on the one hand, budgetary or fiscal policy is providing an expansionary stimulus to the economy and, on the other hand, the Reserve Bank is having its hand forced to increase interest rates to counteract the expansion that has been created by the government’s spending spree.

In the Statement on monetary policy, it says:

More recently, spending has been supported by the strong labour market and the tax cuts that took effect in July 2006.

That is a matter about which I warned before the tax cuts were brought down, so I was not a Johnny-come-lately to that debate. I certainly cautioned about the expansionary impact of tax cuts that did not constitute a genuine reform, and those tax cuts fell into that category. The statement goes on to say:

... the Bank’s liaison with retailers indicates that recent spending growth has been fairly broad-based.

It also says:

The Westpac-Melbourne Institute measure of consumer sentiment was modestly above its long-run average in October ...

The point is that consumers are rebounding after these interest rate rises and are getting another head of steam—that is, spending more and therefore putting more pressure on interest rates. In the labour market, the statement says, ‘Businesses are reporting firm hiring intentions and significant difficulty in finding suitable labour’—all a reflection of the skills shortages that this government has allowed to develop because of its disinterest in investing in education and training in our country. So there we have skills shortages and inflationary pressures from consumption spending, fuelled by government extravagance. In addition, the statement from the Reserve Bank says:

Producer price data suggest that upstream inflation pressures remain strong.

So all the portents are there for a further interest rate rise. I am not saying that that will happen with certainty, but the ingredients are very much there. Again, I refer to the Statement on monetary policy, which in its conclusions in relation to interest rates says:

... the generalised price pressures currently evident in the economy are likely to continue in the near term. The central forecast is that underlying inflation will remain at around 3 per cent over the next year.

That is very worrying because that is the underlying rate, and it is at the top of the range. Therefore the balance of risks would tend to favour a further interest rate rise, which would be five interest rate rises since the Prime Minister promised to keep interest rates at record lows, giving Australia the second highest interest rates in the developed world.

But, if that was disappointing, more disappointing has been the government’s performance on productivity growth, because today’s productivity growth is tomorrow’s prosperity. This Statement on monetary policy says, in relation to productivity growth, that the data:

... imply that labour productivity growth has been low, at 0.6 per cent per annum over the two years to 2005/06 ...

It goes on to say:

If firms cannot bring new factories or mines immediately on line when capacity constraints become binding, they may decide to hire more labour to work their existing production processes more intensively—

and it points to that then leading to productivity reductions. This is a terrible performance on productivity growth, a failure to invest in Australia’s future by investing in our young people in skills formation and education, and economic mismanagement both in the short term and in a lack of any vision and forward planning to lock in Australia’s prosperity and provide opportunity for all.

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