Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Hansard source

I rise to speak in relation to the latest report by the House of Representatives Economics Committee, its Review of the Reserve Bank of Australia Annual Report 2014. I wish to thank the new chair, the member for Bennelong, and the committee secretariat. I note the presence today of a number of my colleagues on the committee, notably the member for Charlton and the member for Page, who, I understand, will be speaking to the report.

The backdrop to the report was the significant move by the RBA away from a position that it had stated for some time—in fact, since about August 2013—that it would apply a period of stability to interest rates. It decided in February, all of a sudden, that it would move away from that period of stability and move to lower interest rates, which obviously raised eyebrows across the community for a host of reasons. When you look at the economic factors that are in play, you would believe that those economic factors, in any other given period of time, would be enormously beneficial to an economy. Chiefly, when you look at the drop in oil prices which flowed through to fuel prices, and the CPI flow-through effect of that, you would think that there would be benefits straight away in that avenue, particularly in terms of potentially building consumer confidence and possibly leading to people spending a bit more in the economy and recognising the beneficial impact of that.

You would also look at something that, from an economic perspective, has been of great concern to us for some time. That is the strength of the Australian dollar. In fact, the RBA noted that since the last time it issued its statement the Australian dollar had fallen something like nine per cent relative to the US dollar and about seven per cent in the trade weighted index against other currencies. You would imagine that that would be a fairly significant event in itself. Off the top of my head, the Australian dollar is trading at about 76c, give or take, which is down from the highs well above $1 some time ago.

You would think those two factors would be enough. But what was surprising—and the report carries this quote—was when the governor stated:

When we reviewed our forecasts in late January, we did not feel that growth thus far had been weaker than we had expected three or six months ago, but, when we looked forward, as hard as that is to do, we felt that there were fewer signs of a further pick-up in non-mining activity than we had hoped to see by now.

This is a fairly significant warning about the health of the Australian economy. What they are saying is they are not just looking at the short term; they are looking down the track as to where they think the economy is headed and they have made this call to reduce interest rates. The RBA governor has previously said words to the effect of, 'You should not see monetary policy as a silver bullet.' But at the same time, too, the Reserve Bank recognised there were very few other levers to be able to pull to try to lift growth in the economy.

How is the government receiving this type of news? The government has been working flat out. I am surprised to hear senior ministerial figures in this government try to tout a number of things as signs of great movement in the economy. Just the other week, I was listening to some of the stats that were being put forward. The coalition was spruiking economic growth as rising. That just flies in the face of what the RBA is saying—that growth in the economy will remain below trend for some time. You hear the coalition spruik the growth in job ads, yet unemployment is higher now than what it was during the GFC. The RBA is actually concerned, as outlined in this report, about where unemployment will peak and the fact that the economy is not growing at a rate high enough to see unemployment decline.

The government talk about housing stats. In actual fact, one of the concerns that exists and is touched on in this report is the growth in investor lending, which I want to come to later, and the fact that that growth is patchy. Other than in Sydney, growth in housing markets is roughly at five per cent. We have put a lot of store in the notion that in the non-mining sector dwelling activity should be stronger, but it is patchy, at best. We have strong growth in Sydney and Melbourne, but that is not necessarily being replicated elsewhere.

The coalition talks about infrastructure spending, yet the RBA continues to point to the fact that, if you are serious about tackling housing affordability, you have to make sure supply is connected up with infrastructure, particularly transport infrastructure. This government is making calls on infrastructure that defy the normal, usual process that people can support, which is to have infrastructure decisions—say, for example, from Infrastructure Australia—made independently, made with some rigour and a clear cost-benefit analysis. That is not happening. What we are seeing in infrastructure spend is basically a coalition federal government working in lockstep with coalition state governments because it suits political priorities rather than the needed infrastructure priorities that are out there, the types of infrastructure priorities that the RBA keeps signalling are important if you want cities to work better, if you want to see productivity, if you want to respond better and if you want to deal with the type of concerns that exist about house prices. People will move to areas where they know there is good infrastructure. The strength of that demand will drive up housing prices. They are just making it harder in terms of the way the economy and cities work.

The other element that surprises me about the way the government is going is that they seem to be claiming credit for all these other stats. They cannot even get their budget through the parliament, yet they believe that they have been the main driver behind the economy in the stats that they quote.

The report also made reference to the work of APRA in developing a suite of macroprudential tools to address the serious growth in investor lending in the residential real estate market. We have had APRA before us a number of times and, besides this report, APRA appeared before the committee last week, giving a bit more insight into its thinking about what it will do on macroprudential tools. I have expressed support previously for Chairman Byres. I am particularly impressed by his approach and I know that the financial sector is as well. But I am not entirely sold on an approach that he outlined on dealing with investor lending via macroprudential tools where APRA is, understandably, looking at increased capital requirements on banks, because they are losing patience with the bank's response to the growth in investor lending. You can understand why they would want to do it: it gives them more bang for their buck. But they are talking about increasing capital requirements at a time when we are looking at increasing capital requirements through the work of Basel III and when we are also looking at the FSI recommendation on cap requirements. So you can certainly understand why they are going down that path, but the issue I am concerned about is transparency.

APRA are flagging that, when it applies this macroprudential tool of increased capital requirements on banks, they believe that this will be done behind closed doors. A number of us, regardless of your politics, expressed mild surprise—that is how I would put it—on Friday when we were told that this would happen in this way. We certainly believed that, on a public policy issue as big as the growth of investor lending in residential real estate, this stuff would be done in the open.

APRA are saying they will not require banks to report, that this would not be a reportable matter to the share market and that this would be done behind closed doors. It flies in the face of the spirit of banking deregulation that has been unveiled in this country over decades, which was to take away the back-room approach, the cosy approach, to the way that mortgage lending was extended and decisions were made. It opens it up and we are getting rid of those cosy arrangements. But for APRA to now say this would actually be done with individual banks—which I support; you need to do it with individual banks—and done behind closed doors, I think, raises concerns about transparency.

Investor-lending growth is a big deal. It grew double the rate of owner-occupier lending in 2014, at about 11 per cent. I am yet to be convinced that applying a regulatory tool of this magnitude in private, not being open to the market and lenders about it, and requiring us to get post-event details through committees or the tabling of reports is an approach that should be adopted. We will be testing APRA on this. I think that APRA will need to consider a variety of elements in the application of this macroprudential tool, if it is applied. I look forward to hearing further about the development of their thinking. Obviously, they have not detailed exactly how they are going to go on this front at this stage. But, when they do, I think they will need to provide more information to the public about how they intend to proceed.

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