Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Hansard source

Not only is he displaying a woeful ignorance of economic history and indeed economics but he is now suffering from delusions. He has just told the House that I was in the press galley last night when, in fact, I was in Sydney, addressing a gathering of my constituents. It is puzzling. I do not know who he thinks he saw, or whether he is becoming so anxious he is imagining I am there when I am not.

It is not just imagining people that is the Treasurer’s problem; he also repeatedly misstates and misrepresents economic history. For example, in his remarks just a moment ago he said that the Reserve Bank has had to put up interest rates because of the Commonwealth failing to run a responsible fiscal policy of its own. In other words, instead of the Commonwealth running the massive surpluses that it did—1.6 per cent of GDP last year, 1.5 per cent the year before, 1.5 per cent before that—the coalition government should presumably have run an even larger surplus, perhaps of two per cent or three per cent. Who knows? He does not stipulate a figure. But the sad thing for the Treasurer is that this claim is not borne out by anything said by the Reserve Bank. There has never been a statement by the Reserve Bank during the period of the Howard government to the effect that they would not have to put up interest rates if only the Commonwealth would run a larger surplus. That is a complete myth. That is as mythical as his view that I appeared in the press gallery last night.

Indeed, two distinguished Reserve Bank governors have said very authoritatively that monetary policy—and I am now quoting Governor Glenn Stevens when he was the deputy governor—is the most important determinant of long-run inflation performance. The former governor, Ian Macfarlane, in his Boyer lectures of 2006, said, ‘In the past 60 years, there has never been a period with a high rate of inflation that had not been supported by accommodating monetary policy. Similarly, there had never been a major fall in inflation without it being accompanied by a tightening of monetary policy.’ What the Reserve Bank has said about fiscal policy is that the strong and consistent surpluses that the government has run have contributed to financial stability in our system. The Treasurer’s myth about the Reserve Bank is just that. Indeed, what the Reserve Bank has said is completely at odds with what he has asserted.

Let us talk now about the really critical issues for Australians: inflation, interest rates and unemployment. Financial policy, monetary policy and fiscal policy are very difficult, because governments and central banks are bound by statute and good governance to manage and seek to achieve objectives which are in some senses competing with each other. We try to seek to maintain full employment but we want low inflation. We want price stability so that we can have low interest rates. And, to an extent, they conflict with each other. That is, indeed, at the very heart of the questions that the Treasurer has been utterly incapable of answering this week.

The question about the non-accelerating inflation rate of unemployment was not a trick question designed to see whether he knew what NAIRU was, although any other Treasurer would have known that. Certainly when the member for Higgins was the Treasurer he had no difficulty answering questions about it. But the term itself is not complicated, because it defines itself. What it speaks to is this: how low can employment go before you start to trigger inflation? That is the question. It is a vital question. We now have unemployment at a 35-year low of 4.1 per cent.

One of the great achievements in the Howard years was the ability to run this economy with very strong growth—the most recent numbers are around four per cent, although the bank is now forecasting that that will come off in line with global conditions—compared to our peers, very low unemployment and inflation through the cycle of between two per cent and three per cent. If you go back 10 years or even less than 10 years, many economists said then that you cannot have unemployment below seven per cent without triggering runaway inflation. In other words, they were saying that the NAIRU—the non-accelerating inflation rate of unemployment—is in the order of seven per cent. While it is not one of those statistics which you can be completely precise about, very few economists would say that it was materially more than five per cent. Most would say that it is somewhere in the four per cent range. People will contend about where it is. But the fact is that it has come down. What that means is that because of the strong economic management of the Howard government we can run an economy with stronger growth, manageable inflation and more Australians having jobs. At the same time, the participation rate is at an all-time high. That is delivering the key objective of economic management, which is sustainable prosperity for all Australians. That is what this is all about.

These questions about inflation and unemployment are ones that the Treasurer appears not to have been able to turn his mind to at all. He tried to get out of his difficulty, after his embarrassing period in question time a few days ago, by first suggesting that he had not answered the question because he did not want to nominate a specific number for the NAIRU. That did not wash, so his latest contrivance, which came out the following day, was to say that it was not really a very important statistic or concept anyway. And yet his own department thought it important enough to publish on its website a very insightful paper on the NAIRU as recently as December 2007.

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