Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Hansard source

I thank the member for Bonner for her question. Yesterday’s decision by the Reserve Bank to reduce interest rates, the first in seven years, is a welcome relief for homebuyers throughout the nation and for Australian businesses. Yet again, the Reserve Bank’s decision contains a very important message, and I would like to read that message out again. That message is:

Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the Board has been seeking to restrain demand in order to reduce inflation over time.

Yet again, the Reserve Bank has drawn attention to the problems of capacity constraints in the Australia economy. When they were in government, the opposition missed those messages 20 times; they did not register on the opposition’s radar. One would hope that they register now; one would hope that they understand the message now. The government would hope that the opposition understand that the central factor in economic capacity is infrastructure.

Infrastructure investment lifts the speed at which an economy can grow sustainably, it improves productivity and it generates economic opportunity. That is why the budget makes provision over the long term for $76 billion worth of infrastructure investment. Whether it is through the AusLink program, rail, the Building Australia Fund, the Education Investment Fund or the Health and Hospitals Fund, all of these things are about long-term investment in Australia’s future prosperity. Improving the infrastructure in Australia’s economy, improving the capacity in the economy, will enable us to reduce the risk of interest rate increases into the longer term. That is the clear message from the Reserve Bank statement that was released yesterday. We do not want to return to circumstances where inadequate economic capacity is pushing up inflation and therefore putting upward pressure on interest rates.

Yesterday’s decision has provided welcome relief for many working families throughout Australia. For people with a typical mortgage, that relief is close to $600 per year. It is the first rate cut for seven years, so there are almost three quarters of a million first home buyers who have, until now, not experienced a cut in interest rates because of the long, steady interest rate increases under the former government.

Yet, bizarrely, the Liberal Party in the Senate seem intent upon ripping this benefit away from many working people by blocking the government’s changes to the thresholds for the Medicare levy surcharge. In fact, there will be, if the Liberal Party is successful in the Senate, many people in this country who otherwise would have been better off to the tune of about $1,800 or more as a result of the two initiatives—that is, the Reserve Bank cutting interest rates, thereby dropping their mortgage costs, and the government lifting the threshold on the Medicare surcharge. Many of those people would have been better off to the tune of about $1,800 a year. But if the opposition blocks the changes to the Medicare surcharge, they will not benefit in anything like the same way because they will continue to be hit by a slug that was originally intended to hit high income earners. Apparently the opposition now believes that people earning $50,000 a year are high-income earners and should be hit by this tax surcharge. So much for the party of low taxation; so much for the party that is seeking to relieve the tax burden on ordinary working people.

We do face very challenging economic circumstances in this country as a result of a variety of international pressures. It is critical that we investment for the future; it is critical that we investment for tomorrow, not just spend today. We are now dealing with the legacy of a government that saw the future as election day, that saw spending as the way to win on election day and that saw investing as something that other people do. We are seeking to turn around that legacy and ensure that we get an appropriate balance in this country between spending and investment and that we have long-term infrastructure investment that will enable us as a society to grow sustainably. That will create economic opportunity and ensure that the Reserve Bank is helped in its long-term job of keeping interest rates as low as possible.

See this speech in context