Sharon Grierson (Newcastle, Australian Labor Party) Share this | Hansard source

I wish to support the report tabled today, Review of the Reserve Bank of Australia annual report 2005. As part of its role, the House of Representatives Standing Committee on Economics, Finance and Public Administration scrutinises the performance of the Reserve Bank in its functions of implementing monetary policy and managing the bank payments system. This report deals mainly with the presentation of the RBA governor and his executive at the committee hearing held in Sydney in August of this year.

It was quite a historic event: Governor Ian Macfarlane—the Governor of the Reserve Bank for a decade—was soon to retire, and Deputy Governor Glenn Stevens had just been confirmed as the next Governor of the Reserve Bank. It is true to say that neither disappointed in their performance. In exploring the current state of the economy, 15 years of expansion, high employment and a growth rate revealing the impact of significant capacity constraints, the governor’s attention and that of the committee was focused on inflation and the impact of past and further interest rate rises—and they keep coming.

In regard to capacity constraints, the governor was an optimist—efficient use of labour and capital, he claimed. That may all be correct. However, in my city, the Port of Newcastle faces the difficulties posed by this economic state where capacity constraints hold back growth. The Port of Newcastle remains at high export efficiency. The rail infrastructure bottlenecks have been partly attended to and coal loader expansion is underway, but demand from our developing nations—China and India particularly—just keeps growing. The 50 ships off our coastline will be there for quite a while.

The other impact of the failure of this government to tackle these capacity constraints is, in real terms, inflation. In real terms, to the Australian people it means interest rate rises. In fact, those interest rate rises have kept coming. In August we had an interest rate rise. In November we had an interest rate rise, which was the fourth interest rate rise since this term of parliament began.

The governor took the opportunity at that hearing to deal with and try to explain comments he made to a previous committee hearing regarding tax cuts. He actually said that his comments were completely misinterpreted. Further, he told the committee that he was trying to pour a bit of cold water on the idea of having really big tax cuts and big fiscal expansion. I hope that John Howard and Peter Costello are listening, because we do not want to see a wasted opportunity next year when the budget is announced.

Governor Macfarlane commented on the possible fiscal stimulus of federal and state budgets by saying:

We are now entering a period where there are capacity constraints where we really do not want the economy growing much faster than the twos to threes. The economy is in a situation where it is more sensitive to what happens with fiscal policy than it has been in the past.

In his statement he said that his best guess was that, if the federal budget outcome is as it is budgeted, that would be equivalent to a fiscal stimulus of half a per cent of GDP. He then said: ‘If you add the state budgets’ stimulus as well, then you end up with one per cent stimulus and you end up with an economy that is prone to inflation’—

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