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

When the February unemployment figure of four per cent was released last Thursday, we did not hear much about it from the government. All we hear from the Treasurer is how he wants to modernise the economy, whatever that is supposed to mean. He provides very few particulars. He was asked last week a dorothy dixer about unemployment and he gave what is fast becoming his stump speech—an explosion of complete incoherence and utter confusion. His first quarter headline CPI, which in this context is the ‘competence performance indicator’, is not good; and his underlying measure of CPI, his ability to answer questions coherently, is even worse. Late last year the member for Higgins said that the now Treasurer reminded him of ‘a political cyborg who runs a line over and over again in the hope that journalists will pick it up’. Well, the cyborg is malfunctioning. It needs reprogramming; it needs help. It is the cyborg, not the Australian economy, that is in desperate need of modernisation!

The Treasurer thinks he can get away with commenting on the Australian economy in a way that persistently misrepresents our economic circumstances and our economic history. And it is not just our history that he misrepresents; he misrepresents all the members of the opposition who speak about the economy. Only today he said again in question time, as did the Prime Minister, that I have described inflation as a fairytale. So once again I wearily rose to my feet on a point of personal explanation and corrected it. The Treasurer knows full well that I have never said inflation is a fairytale. Inflation is a very significant economic challenge, particularly in these times where we have high economic growth and historically very low unemployment—and I have said that again and again. What I have criticised the Treasurer for doing is telling falsehoods and fairytales about our economic history and, in particular, the history of inflation. There is a transcript of my remarks in that context from 23 January—a public document that is on my website—but he misrepresents them every time he has the opportunity.

But the person whom the Treasurer, the cyborg, misrepresents the most is surely the Governor of the Reserve Bank. There is nobody in Australia at present who is more misleadingly cited than the Governor of the Reserve Bank. Last week the governor gave a very comprehensive speech about inflation, its causes, its remedies and its context in modern Australia—it was a speech in the Australian Treasury seminar series—and today we had the Treasurer claiming that this supported his views about inflation. The Treasurer wants to set up a straw man to the effect that the opposition does not believe inflation exists. Of course, the Reserve Bank supports the Treasurer’s views that inflation exists. But nobody has denied that and nobody has denied that it is a challenge. Where we take issue with the Treasurer is not in the form of the straw man, the bogus proposition that he puts up as our case; our criticism of the Treasurer is that he is misrepresenting a very serious challenge and that, in doing so, he is talking down the strength of our economy and exacerbating inflationary expectations.

Every time he opens his mouth on this subject, the Treasurer says that inflation has been caused by the ‘reckless spending’ of the Howard government, by a ‘chronic skills crisis’—that is his phrase—and by a failure to invest in remedying what he describes as infrastructure bottlenecks, the ones we are most familiar with, being the problems at ports that export raw materials, particularly coal. There are certainly infrastructure bottlenecks in our society. There are certainly skills shortages in a number of industries—we would say many sectors now—where there is strong demand. But it is untrue to say that there is a chronic skills crisis, because, by saying that, it suggests that there is a shortage of skills right across the economy, that it is pervasive, that it is chronic, that is of long endurance and that it is not being addressed. Yet we know from the many speeches and papers given by the Reserve Bank—you only have to look at the speech last week by the Reserve Bank Governor—that our inflation has not come from wages. It is obvious that a chronic skills crisis would cause wage inflation right across the economy. That is why you would not want to have a chronic skills crisis. The Reserve Bank Governor said he is not saying that wage earners have been responsible for inflation. He said:

This episode—

this episode of elevated inflation through which we are living at the moment—

has not been caused by some exogenous ‘break out’ in wages. Until recently, it was, in fact, possible to say that wages growth had been remarkably steady at an aggregate level in the face of a very tight labour market, with relative wages across industries and regions doing what one would expect given the shocks hitting the economy. At one stage, I described this as a textbook case of adjustment, in a labour market made much more flexible by a long sequence of reforms.

That statement, which is in the same terms as many remarks from the Reserve Bank, underlines the nonsense that is being spread by the Treasurer. Yes, we have skills shortages, particularly in those areas with the strongest demand, the mining sector being the classic case. But, because we have a flexible labour market and because we have an efficient labour market, workers have been able to move to the areas of greatest demand and, remarkably, we have not seen the type of wage inflation that we had in the past.

If you go to the conclusion of the governor’s speech, and this is a speech by the governor that the Treasurer calls in aid for himself, it rejects the notion of a chronic skills crisis—it does not even mention the term—but it makes it clear that it is not skills shortages that are driving inflation. He compares our economy today with the circumstances of the 1950s and the mid-seventies, when in the early fifties CPI inflation reached 25 per cent and in the mid-seventies it reached about 18 per cent. He said:

This time, we are grappling with a peak CPI inflation rate that looks like it will be around 4 per cent in CPI terms, and trying to assess how soon it can reasonably return to 2-3 per cent.

I should add that the average headline CPI throughout all of the 47 quarters of the Howard government—including the December quarter of last year which was, of course, only partly under the Howard government—is exactly 2½ per cent, right in the midpoint of the RBA’s range, so it is mission accomplished in terms of inflation targeting. But the governor went on to say:

This is a far cry from the problems of yesteryear.

He then said:

The reason we are doing better this time around is not hard to fathom ... a flexible exchange rate, a reformed and flexible industrial environment, better private-sector management ... stronger fiscal and monetary policy frameworks have made a lot of difference. The fruits of those decades of effort of reform are an economy that, for all its strains, is doing well under the circumstances.

And further:

Our challenge is to keep those improved structures in place and to develop them further, in the period in which we have the privilege of having some influence.

That is a balanced description of our economic circumstances. Yes, inflation is an issue; it is a challenge; it is consequent upon, as the governor says, the extraordinary improvement—a good, positive shock—in our terms of trade. We have been able nonetheless to manage our economy, thanks to the sound economic management during the Howard and Costello years, with low unemployment, high economic growth and inflation managed within the range.

Why does it matter that the Treasurer misrepresents our economic history? Well, the fact is that inflation is a function of expectation. He chose to misrepresent our economic history and, for purely politically partisan purposes, to try to paint a picture of a new government that had been handed an economic mess. That was the picture he tried to create, presumably so he and the Prime Minister could be given the credit for resolving it. The fact is that we have a very strong economy. We have very considerable international pressures and threats. We are strong and we are resilient, but we are not immune to the rest of the world, and everything that senior officials say in this country is taken seriously in the rest of the world.

When our Treasurer said in early February, just before the bank board met, ‘The inflation genie is out of the bottle,’ and, ‘Inflation has been on the march for two years,’ the headlines around the world described a country where inflation was out of control. He has the effrontery to call the Reserve Bank Governor in aid in support of this nonsense. The Reserve Bank Governor is there saying, ‘Yes, it is an issue. Yes, we are going to tackle it. That is why we’ve put up rates.’ That, of course, is what central banks do: they put up rates when the economy is growing and they want to moderate growth, and they pull them off—as Governor Bernanke is doing in the United States—if the economy is heading in the other direction and they want to avoid slowdown or, as in the United States, a recession.

What the Treasurer has done, instead of talking about our economy in a measured, objective and informed way, in a way that assists the markets to understand and deal with the complex challenges we face, is create his own ‘Wayne’s world’ parallel universe in the hope that if, cyborg like, he continues to repeat one falsehood after another often enough, it will be picked up. This ‘cyborgitis’ is infectious, because the Minister for Infrastructure, Transport, Regional Development and Local Government has been infected by it. Only last week he said that on 20 occasions the Reserve Bank has called for the national coordination of infrastructure. The national coordination of infrastructure may or may not be a good thing. There are advocates for it, there are sceptics about it, but we would all like to see better and more timely investment in infrastructure. I particularly committed to that when I was the Minister for the Environment and Water Resources. As you know, Mr Deputy Speaker, we undertook the National Plan for Water Security, which was a $10 billion investment, almost all of it in water infrastructure—and what could be more important than that? The Howard government committed the $2 billion Australian Government Water Fund—again, almost all of that went into water infrastructure—not to speak of the investment in transport infrastructure through AusLink. So, yes, investing in infrastructure where there is a real net benefit is a good thing—we all agree with that. But the Reserve Bank has not called for the national coordination of infrastructure on 20 occasions. It is absurd. It is a falsehood. It is made up. It is no different from the approach that the Treasurer takes: find a falsehood that serves a political purpose and just repeat it and repeat it in the hope that it will be accepted.

The former Prime Minister, Mr Howard, and his predecessor, Mr Keating, both said that when you change the government you change the country. Well, we have certainly seen a lot in our country change since the election of the Rudd government. Since the election, business confidence has declined and consumer confidence has plummeted. Since the change of government, inflationary expectations have risen particularly, as is plain, among trade union officials. That is precisely why the Reserve Bank is not as confident as it was six or nine months ago that wage pressures will continue to be ‘a textbook case of adjustment’.

Is this all just an unhappy coincidence? When the coalition took office on 11 March 1996, the Reserve Bank’s cash rate was 7½ per cent. The coalition’s goal was to eliminate Labor’s $96 billion worth of debt and take pressure off interest rates. It is a matter of public record that this was achieved. Labor’s debt was paid off and interest rates came down, no thanks to the Labor Party, which opposed that form of fiscal prudence. Australians found the coalition’s commitment to fiscal consolidation and good economic management highly credible. They had confidence in the coalition.

How do we know that? For a start we can look at the measures of confidence. In 1996 there was not a 15-point drop in the Westpac-Melbourne Institute measure of consumer confidence in two months, which is what has happened under this government. In fact, the index jumped seven points in the month of March 1996, when the coalition took office. On average the Westpac index was 11 points higher during the coalition years than it was under Labor, and the National Australia Bank’s quarterly business confidence index jumped by almost 12 points in the March quarter of 1996, the fourth largest in the history of that index. When the coalition took office, inflationary expectations fell; they did not rise.

What has happened with bank interest rates under the Rudd government? The US subprime crisis has started to affect banks’ wholesale borrowing costs. That started in last August, long before the election. The cost of some of our banks’ funding base rose and now, I think it would be fair to say, all of the banks have significantly increased wholesale borrowing costs. They chose to wait until after the election to pass on those increased wholesale costs, and some people have suggested this was due to the Treasurer. I would not make that claim. Those costs inevitably had to be passed on at some point in time, and I imagine many banks balancing, on the one hand, their commitment to their customers and their desire to maintain the loyalty of their customers and, on the other hand, the speculation—and it genuinely is speculation—as to how long this disruption in global credit markets will continue.

There is a key issue here. It is one of confidence. Confidence is absolutely essential to financial markets; it is everything. Once the participants in financial markets lose confidence in each other, they will not lend to each other. You can see the consequences of that now in the credit crunch. Bear Stearns, the fifth largest investment bank in America, nearly collapsed and was taken over by JP Morgan at a tiny fraction of its value a few months ago with the support of the US Federal Reserve. That was decisive action by the US Federal Reserve to stop a bank collapse that would have had shocking global ramifications. What caused that lack of confidence? If people do not have confidence in other institutions they will not lend; if investors do not have confidence in markets they will not invest. These elements of confidence are fundamental to the security of our economy. That is why the Treasurer is so reckless in his constant refrain of running down our economy and talking up a skills shortage across a number of sectors of the economy into a chronic skills crisis. Instead of speaking about inflation in measured and objective terms, he talks about it as though it is another crisis. (Time expired)

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