Scott Buchholz (Wright, Liberal Party) Share this | Hansard source

It is my privilege here tonight to speak on the review of the Reserve Bank Annual Report 2010, the second report, which was tabled in 2011. The House of Representatives Standing Committee on Economics from time to time questions the Reserve Bank by calling governors as witnesses to further expand on monetary policy and how it interacts with Australian fiscal policy. Let me say from the outset that I commend the Reserve Bank under the stewardship of Glenn Stevens. While I am talking about Mr Stevens and his role as governor, I also want to take the opportunity to welcome some of the new board members and thank the outgoing board members.

I would like to pass on my congratulations on the magnificent effort over the last 10 years of one Warwick McKibbin. He had been a member of the board since July 2001. He was the director of the Centre of Applied Macroeconomic Analysis at the ANU. He was the director of the Research School of Economics at the Australian National University. He is a professional fellow of the Lowy Institute for International Policy, a non-resident senior fellow of the Brookings Institute USA and the list goes on. He is a man of immense talent.

He has been replaced by Catherine Tanna. Catherine comes with myriad experiences from the resources sector—particularly the gas sector. Those skill sets will serve her one in this two-speed economy and the terms of trade that we are dealing with at the moment, which I will speak more about during my speech. I also want to take this opportunity to welcome Dr John Edwards, a man of immense talent. In summary, he was a senior economist for HSBC and has a strong academic background. He will fill that void at the Reserve Bank and complete that team.

I want to encourage the ongoing independence of the Reserve Bank and its separation from government and how it sits at arm's length. I support their charter and the way that works autonomously. The Reserve Bank Board normally meets 11 times a year—on the first Tuesday of each month except January each year. At least one meeting is held in Melbourne, usually in the first half of the year. From time to time the board also meets in other capital cities. I would also like to take this time to acknowledge and thank Glenn Stevens again for making time to be available to come to Canberra. Later on in the year, we will be meeting again in Canberra.

To speak more directly to the report, one of the first things that I want to go over is the issue of inflation and some of the pressures that that will put on our economy moving forward. I am a commercial businessman, so I do not have an economic background as such. At university, I did a couple of subjects in it, so I understand the basic fundamentals of economics. What I remember is that when measuring GDP the formula was consumption plus government expenditure plus investments plus exports minus imports. Our exports and imports are our terms of trade. At the moment they are going off like a rocket. That is on the back of very little that we do with reference to fiscal policy. They are going off like a cracker because of the demand on our resources by international trading partners, given that they would be China and India. We do not have a lot of influence on that part of the equation when it comes to trying to stay within our inflation range of two to three per cent.

When you go through and start pulling that formula apart, you have consumption. Some will say consumption figures are up. Others will say they are down. The guys that are saying that consumption figures are up are referring to the lower household budgets, where people are struggling under the cost-of-living pressures—increases in rent, increases in energy prices and new taxes on energy and fuel. Those guys who are saying that the cost-of-living pressures are down are the ones who are saying that the monetary system, with reference to consumption in that formula, is drying up. There is very little stimulus in our retail market. When you have a look at business receivables ledgers, people are struggling to find the capacity to pay their bills.

We do as a government, through fiscal policy, have the capacity to affect consumption. But the most important part of that formula is government expenditure. I will use the NBN as an example. For the sake of an economic debate, whether you believe the NBN is good policy or not, set that aside and just look at it as a capital investment of government. We have heard the analogy of our two-speed economy. We have a resources sector that is going off like a cracker then we have another speed in our economy which the Reserve Bank refers to as the multispeed economy. I refer to it as a two-speed economy. The government refer to it as a patchwork economy. The definitions may differ but the fundamental principles of what we refer to are overwhelmingly the same. My concern is that capital investment in an NBN program in excess of $43 billion is just about to come online into that formula at the very time when the resources sector is going through a one-in-110-year spike in capital investment on the back of this unfathomable terms of trade. What we have are some things that we can control in that formula and some things that we cannot.

From a macroeconomic perspective, a fiscal policy perspective, I believe that large government spending programs need to be wound back to allow the private sector room in the marketplace. The predominant funding capacity in the NBN program is civil works, and they are very civil works that compete against the resources sector. What does that mean? When we are out there in the marketplace looking for loader drivers and graders and tractor drivers, the telcos are looking for those very same skill sets. I am sure when they did their forecasting they would have found that you would normally buy those commodities at around $60,000 to $80,000 a year per head. The resources sector pay $130,000 to $150,000 per head. That puts upward pressure on wage inflation, which then trickles down. That is a long way of going about it to try to explain how inflationary pressure works. I can assure you it is a challenge for our Reserve Bank moving forward when it comes to trying to cope with the inflationary pressures that we have.

I have already spoken about the capital expenditure with reference to the mining sector and the impact that that will have on our economy. I want to now speak about those small communities in regional Australia, even some of the cities, that have no linkages to the resources sector, and about how isolated they are. What happens is that as inflationary pressures push up the cash rate and so push up our mortgages and our cost of living, we find that those people who do not have access to the resources sector, to those inflated disposable incomes, when the upward pressure of inflation tunnels in and has virtually a multiplier effect, it does most harm to the people that can least afford it in our community. I just counsel the Reserve Bank when making their deliberations when it comes to movements in the cash rate that they are very mindful of those communities like mine in the seat of Wright in Queensland that do not have linkages to the resources sector, and that they take that into account.

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