Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Hansard source

Today’s national accounts, reflecting 0.6 per cent increased growth in the March quarter and 3.6 per cent in the year to the March quarter, reflect some moderation in overall economic growth. Today’s national accounts paint a clear picture of the economic challenges which now face the nation. We have continuing economic growth, but at the same time we have a real problem in dealing with supply-side constraints in the economy, which have had a cumulative effect in increasing inflationary pressures.

We are very much at the initial stages of a 15-round fight against inflation. Inflationary pressures have taken a long time to build in the economy and they will take a long time to turn around. Inflation is a critical challenge facing the national economy because inflationary pressures running ahead have an upwards impact on interest rates. If you have an upwards impact on interest rates, that represents a long-term drag on economic growth and therefore a long-term impact on employment as well. That is why it is important that this government places at the centre of its economic priorities the fight against inflation.

That is what the government did in January this year when we announced our five-point strategy for dealing with the inflation challenge. Remember that, at the point at which we assumed office, inflation was running at a 16-year high. Therefore, we announced a strategy which was going to have as its core elements: (1) responsible economic management through bringing about a significant budget surplus; (2) encouraging private savings; (3) increasing capacity when it comes to skills formation in the economy and dealing with skill shortages; (4) investing in infrastructure and overcoming infrastructure bottlenecks; and (5) enhancing workforce participation. This is a coherent strategy for dealing with the inflation challenge, and if there is one sobering message to emerge from the national accounts data today it is that this challenge must be addressed head on.

The government’s response in the implementation of this strategy has been clear cut. We have brought about a $22 billion surplus and, in the engineering of that surplus, we have also brought about $7.3 billion in savings in the coming year and $33 billion worth of savings across the forwards estimates. Ensuring that you are bringing about significant savings and that you are exercising appropriate restraint on expenditures is a responsible course of action for the future. Again, we have done that by ensuring that expenditure growth as a proportion of GDP has been kept low and that, similarly, tax as a proportion of GDP has been kept low as well.

The second element of the government’s budget strategy has been to deal with others of those inflationary pressures which are evident upon any analysis of the national accounts data. That means dealing with our supply-side constraints. That is why the government is clear cut in its strategy to invest in skills and invest in infrastructure. That is why we have established the Building Australia Fund to deal with infrastructure challenges for the future. On that point, I commend the Minister for Infrastructure, Transport, Regional Development and Local Government for convening today the first meeting of the advisory council of Infrastructure Australia. It is six months to the day, I think, since this government was sworn in, and we have a meeting of the advisory council of Infrastructure Australia and a Building Australia Fund, which has been part of the budget papers because this government is serious about dealing with the challenges of infrastructure bottlenecks and the constraints that they represent in terms of not just long-term economic growth but ensuring we are effectively fighting inflation. Similarly, on the skills front, there is the establishment of the Education Investment Fund of some $10 billion for the future.

We need look no further than the part of the national accounts which deals with the contribution of net exports to overall growth. The net exports contribution has been negative 0.7, and this of itself reflects the fact that we are still not overcoming infrastructure bottlenecks and skill shortages when it comes to getting our product out to market. It is very simple: we are depending at present on prices going up when it comes to demand globally for our resources, but, while we have a lot of volume coming in by way of imports, we basically have modest growth when it comes to the volume of exports leaving the country. Therefore, if we are going to deal with these challenges, we have to finally respond to those 20 consecutive warnings contained in one Reserve Bank document after another to act on capacity constraints in the economy. There was warning after warning, year after year, about skills and infrastructure, and that is nowhere more evident than in the national accounts data today and their reflection on the net contribution of exports to overall growth.

Of course, the third element of the government’s budget strategy is not only to bring about responsible economic management through a sizeable budget surplus—and to invest in our future in skills and in infrastructure to deal with these constraints and to deal with those factors which are fuelling inflationary pressures in the economy—but also to deal with the financial pressures faced by working families, working Australians and those doing it tough, because for those Australians inflation is not a charade. For those Australians inflation is not a fairy tale. For those Australians inflation is a real problem, and it is a real problem when inflation going up has an upwards impact on interest rates and that feeds through to their mortgage rates and the overall cost of living. That is why this government has been determined as part of its budget strategy to deliver a package of support for families, for individuals as well as for pensioners and carers, as I outlined to the House yesterday.

The government inherited, after 12 years in office by those opposite, inflation running at 16-year highs. We inherited 10 interest rises in a row. We have inherited these economic circumstances and, as a consequence, the real challenge we face with inflation is either to regard it as a charade, to regard it as a fairy tale or to take that fight head on. This government’s resolve is to take that fight head on. As I said before, taking on the fight with inflation is critical for this country’s long-term economic health and the wellbeing of individuals and families, who depend on the cost of credit and the cost of finance to do so much when it comes to their normal everyday lives. Fighting the fight against inflation is core business for us but I say this: the best way you can fight inflation in terms of the outlays from government is to engineer—and not render a threat to the integrity of—the budget surplus. In this process we have generated a $22 billion budget surplus. That represents responsible economic management. The contrast is a $22 billion raid on the surplus which is the essential accumulation of all the individual budget measures which those opposite have said they will oppose. The contrast on responsible economic management is clear. The government’s resolve in fighting the fight against inflation, particularly on the back of this new national accounts data, is clear. We fight the fight against inflation. That means dealing with upward pressure on interest rates. If we fail to do that then higher interest rates will flow through to economic growth and flow through to employment. We have a responsible strategy for dealing with it; those opposite do not.

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