Andrew Southcott (Boothby, Liberal Party) Share this | Hansard source

As usual from the Labor Party, we have only heard half the story. I suspect that the Labor Party is very much a glass-half-empty type of party, because there was another figure that came out from the Australian Bureau of Statistics today, and that was the unemployment rate for the last month. The unemployment rate for the last month was 4.3 per cent—the lowest unemployment rate, again, since November 1974. When we look at the last 35 years we see that it has taken us until now to get back to where we were before the excesses of the Whitlam Labor government. If anyone had suggested in the 1970s or the 1980s that you could have an unemployment rate of 4.3 per cent and an inflation rate of 2.1 per cent—if anyone had suggested you could have an economy running like that—they would have been laughed out of the place.

One of the features of the Australian economy in recent years has been the extraordinary flexibility that we now see. This has not been due to chance. It has not been, as some suggest, just due to a resources boom. It has not been, as Paul Keating suggested, all due to the changes he made in 1983 and 1984. It has come from a very disciplined approach to economic management. It has come from having budgets in surplus. It has come from taking steps to reform the financial system. It has come from taking a very tough decision to reform our tax system when we made the decision to go to a broad-based consumption tax and have lower income tax at the same time. It has come from having an independent Reserve Bank and giving it the target of keeping inflation between two and three per cent. All of these things together mean that the Australian economy now has a degree of flexibility that it did not have in the seventies and eighties. As members we should look at the Australian economy in toto. What you see today is an unemployment rate of 4.3 per cent and annual inflation of 2.1 per cent, at the lower end of the band, and we have a standard variable rate for mortgages of 8.3 per cent.

The Labor Party have delighted in talking about the overdraft interest rate for 1982. They neglect to say that that was not the housing rate then. The housing rate was capped—and Labor Party members should know that—until 1986. The record rate paid for mortgages is 17 per cent and that was under the Labor Party. When the Labor Party were last in government the Reserve Bank did not raise rates by a quarter of one per cent at a time; they raised them by one per cent on more than one occasion.

As for the MPI that we are debating today—the government’s failure to ensure low interest rates—let us look at what a government can do in this area. Firstly, we have an independent Reserve Bank. No-one is suggesting that the Reserve Bank should be directed on interest rates. Clearly, the Reserve Bank is independent and it has the goal of keeping inflation between two and three per cent. I do not need to remind people of the dangers of letting inflation get out of control. We saw it happen a couple of times in 1974 and 1981 with wage breakouts that led to enormous rises in inflation that, as a consequence, absolutely wrecked the Australian economy. As I said earlier, it has taken us over 30 years to repair the damage that was caused to the Australian economy in the Whitlam years.

There are a lot of problems with Labor’s approach to economic management, but I would like to highlight two of them, and these are the reasons why interest rates will always be higher under a Labor government. The first of these is the impact of labour market flexibility on monetary policy. A number of Reserve Bank governors have given testimony to the effect of having flexibility in the labour market. It makes the decision for monetary policy much easier. We had an inflexible labour market in 1981—and I think of 1981 particularly—and the enormous rises in wages that occurred that year did lead to a recession in the early 1980s. It is very clear that having more rigidity in the labour market has consequences for interest rates.

One of the things that we need to acknowledge is the elephant in the room. The elephant is the union movement and the union movement’s say in the Labor Party. This is why the Labor Party were never able to go as far down the track of introducing flexibility in the labour market as the economy needed. I acknowledge that when Labor were last in government they took a whole lot of decisions that helped the Australian economy—having a flexible exchange rate and allowing competition in the banking market, for example. But because the Labor Party is a wholly-owned subsidiary of the union movement, they are unable to introduce the reforms that the Australian economy requires.

The government has done that. As a consequence we have seen real wage rises of 20.8 per cent for workers since the Howard government was elected. Importantly, because the labour market is flexible, businesses have had the capacity to pay so we have not seen damage to the economy that we saw in the past.

To examine the second reason why interest rates will always be higher under Labor, we can look at the example of the state governments. How would Labor operate in government? At the federal level we have increased services in health and we have increased spending on education and child care. But we have done these things within our own resources. We do not run deficit budgets. In four of the jurisdictions around Australia we see Labor state governments increasing debt. It will be $70 billion over the next five years. Ian Macfarlane, the former Reserve Bank governor—and I know the former Leader of the Opposition got confused about which Ian Macfarlane it was—in the Weekend Australian of 12 August 2006 said:

I have been lucky—for most of my time, fiscal policy has consisted of small surpluses.

So the movement in the government account has not been big enough to be important in the consideration of monetary policy.

It might become an issue because the states are now part of the equation.

These are two of the principal reasons that Labor cannot handle money. This is not something new. Anyone who has followed Australian politics, and older voters, understand that the Labor Party cannot handle money. It is quite possible that there may be a change of government this year. Labor may win government. We now see that the Australian economy is running with an unemployment rate of 4.3 per cent, with inflation at 2.1 per cent and with a mortgage rate of 8.3 per cent, which is higher than it has been in recent years but is still lower than it was for any month of Labor’s 13 years in power. (Time expired)

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