Tony Smith (Casey, Liberal Party, Shadow Assistant Treasurer) Share this | Hansard source

But that just then was more of a whipper snipper performance. In all of the contribution that the Minister for Small Business, Independent Contractors and the Service Economy made, not once did he address the issue of the level of Labor’s spending and the level of Labor’s debt and their relationship to interest rates and the effect that has on small business. In the world of the minister for small business there is no relationship whatsoever between the level of government debt and deficit and interest rates. That is a truly horrifying prospect for the nearly 2.4 million small businesses in this country: their minister, the one charged with looking after their interests, thinks that the level of debt from reckless spending has no impact or bearing on interest rates. Interest rates, as the member for Moncrieff outlined, are the vital indicator that signals the health of those 2.4 million small businesses. You need only ask them about that.

The minister, the member for Rankin, talked about his visits to small businesses made with those who are on the government backbench, some of whom are here in this chamber. I suggest that the next time he goes on a visit he should ask small businesses about the impact of interest rates during the last time Labor was in power. There are two great visual images from the Keating recession. The first is a queue of people looking for a job outside a restaurant in Melbourne, and it stretched for hundreds of metres. The other is of those vacant shops in every main street in every town all over Australia. We on this side of the House have met those small business men and women who suffered because of Labor’s reckless economic policy, many of whom went broke. Only in the last few years have they begun to find their feet again. This minister for small business thinks that it does not matter how high the debt is or how big the stimulus package is—it is at about $40 billion, in the minister’s mind, but I am not sure whether it is $80 billion or $160 billion—as none of that would affect the level of interest rates. This is the fantasy world in which he lives. What is truly horrifying is that I am convinced he actually believes that.

We know that the Prime Minister, the Treasurer and the Minister for Finance and Deregulation do not believe that. We know that from what they have said in the past. We know—and those opposite who have a skerrick of economic understanding know—that the higher the debt and the more reckless the spending policies the more pressure is placed on interest rates. They know that, but they do not want to take the member for Moncrieff’s word or my word. Well, they can take the Treasurer’s words from 2006, when he was the shadow Treasurer. He said this of the former government:

This government have to accept some responsibility. They were always out there claiming credit when the figures were good. They said it was their magnificent economic effort that produced a low inflation, low interest rates environment. Suddenly, when it turns into a high interest rate, high inflation environment, it has nothing to do with them at all.

At the start of 2008 we had the Prime Minister make this point in his keynote address on tackling inflation. In this address that he gave in Perth he outlined a five-point plan. He said:

It should make the job of the Reserve Bank easier not harder.

That is why the government is committed to strengthening the budget position as well as improving the quality of public spending.

That was his task. But what he knows and what most of those opposite know is that their economic policies are making the job of the Reserve Bank harder. They are doing that today. The minister for finance said this in May last year, at a period of time when they were talking about the inflation genie being out of the bottle and they were still Kevin’s economic conservatives in those days:

There has been one important area, amongst the various factors involved in those interest rate increases, where the former government had direct control over, negligently failed to deal with and, as a result, has contributed very significantly to the increase in inflation and the increase in interest rates, and that is government spending.

So he thought the one thing that the former government—which he chastised after it had paid off $96 billion of debt and been running a budget surplus of around $20 billion—had control over that would ease the pressure on interest rates was government spending. This is a straight economic fact. The fact is that the more pressure the government places on fiscal policy—so the more reckless it is with fiscal policy—the more pressure it places on interest rates.

Things have turned out not to be as bad as forecast, as the member for Moncrieff said. Eminent economists like Professor Garnaut make the obvious point that once there are signs the economy is recovering faster than it had been anticipated then it is appropriate to pull back that stimulus at a faster rate. The minister for small business and those opposite can attack us and chastise us but, every time they do, they know they are saying Ross Garnaut does not know what he is talking about. They are ignoring the growing chorus of economists making the point that if fiscal policy is too stimulatory monetary policy has to do more work and that means that interest rates which are rising will rise more than they otherwise needed to and stay higher for longer than they otherwise needed to. To argue otherwise is to say it does not matter how high the debt goes. That would be to argue it never matters how high the debt or the deficit is.

Next Tuesday is Melbourne Cup day. There will be a lot of bets placed. One of them will not be whether there will be an interest rate rise, I think we can all safely assume, but there might be a bet about how high that rise is. There will not be a bet about whether there will be future interest-rate rises. But what those 2.4 million small business owners know, because they have lived through Labor’s economic irresponsibility before, is that however high rates go, however many rate increases there are, they will go higher than they need to and they will stay high longer at those higher rates than they needed to because of the fiscal irresponsibility and stubbornness of this government.

As the member for Moncrieff pointed out, the government’s response for small business has not been first-rate. The primary measure in their stimulus package, as he said, on its own was not a bad measure but it would not be the first policy you would deploy given the circumstances in February. Now we are faced, months after that, with a circumstance where we have a contest between the Treasurer’s and the Prime Minister’s vanity on the one side and the interests of small business on the other. For those sitting here on the back bench with their speaking notes that have the word ‘decisive’ inserted at every 25 words, I would say ‘do your job in the caucus and represent your small businesses’.

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