Craig Thomson (Dobell, Australian Labor Party) Share this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee’s report entitled Review of the Reserve Bank of Australia Annual Report 2007 (first report), together with the minutes of proceedings.

Ordered that the report be made a parliamentary paper.

The House of Representatives Standing Committee on Economics is responsible for scrutinising the Reserve Bank of Australia and for ensuring its transparency and accountability to the parliament, the community and the financial sector. The RBA governor’s appearance before the committee at biannual public hearings is an important element of the bank’s accountability. So too is the Rudd government’s initiative in making sure that the minutes of those hearings are published and that the decision of the Reserve Bank is announced on the day. It is also important to note that legislation that has passed through this House and is with the Senate in relation to the appointments of the Reserve Bank is part of this scheme of increasing the transparency of the Reserve Bank and its operations.

The upward trend in inflation has prompted the Reserve Bank of Australia to increase the official cash rate to 7.25 per cent—up 75 basis points since the former committee met with the bank in August 2007. The RBA has increased the cash rate 12 times since 2001, a total of 100 basis point increase from 8 August 2007, which was yet another strong year for the Australian economy, with growth of more than four per cent over the year to the December quarter. Domestic demand expanded by 5.5 per cent.

The RBA’s forecasts for inflation indicate that underlying inflation should start moderating from June 2009 and reach 2.75 per cent by December 2010. The CPI rose by 1.3 per cent in the 2008 March quarter, lifting the year-ended rate to 4.2 per cent. The underlying inflation rate increased by 1.2 per cent in the March quarter, taking the year-ended rate to 4.2 per cent.

It is interesting that we see this analysis by the Reserve Bank in relation to the pressures that we have with inflation because we have members opposite telling us that inflation is nothing more than a charade, a fairytale or it does not exist. This prompted some questioning of the Reserve Bank governor as to what would actually happen if inflation were to be ignored. What would happen if we took the position of the opposition and ignored entirely the problem of inflation, as the former government did despite 20 warnings from the Reserve Bank? The governor’s response was unequivocal. He said, ‘Ultimately you end up with higher interest rates.’ That is right: ultimately you end up with higher interest rates if inflation is ignored.

Another area where there was considerable debate and questions was in relation to the labour market and the effect that Work Choices may have had on the economy. The governor was asked how productivity is best achieved. His answer was: ‘Why take a whole bunch of things out of the equation? Let them sort it all out as widely as possible. You also have to have fairness in the system. These are considerations that need to be kept in mind, as everyone knows.’

When asked about signs of wage pressure in relation to what might happen now that Work Choices has been dismantled, Mr Stevens said, ‘The labour market has performed very well in adjusting to the nature of the shock.’ So he was quite clear that the demise of the unfair and unjust Work Choices was not going to have a major effect on wage pressures and that narrowing the issues on which people could bargain was not in the best interests of increasing productivity.

Finally, I would like to acknowledge and thank the Governor of the Reserve Bank, Mr Glenn Stevens, and the other representatives for appearing on 4 April; Mr Kieran Davies, who provided a private briefing; Steven Boyd, the committee’s secretary and all of his staff; and the other members of the committee. The next hearing with the RBA will be held on 8 September 2008 in Melbourne. The public hearing in September will be an opportunity for the RBA to report on the most recent data. The committee will use this opportunity to continue to scrutinise the RBA over its conduct of monetary policy and see the most up-to-date forecasts for inflation, growth and interest rates.

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