Mark Baker (Braddon, Liberal Party) Share this | Link to this | Hansard source

My question is addressed to the Treasurer. In light of today’s statement on the conduct of monetary policy, what is the outlook for inflation and Australia’s economy?

Peter Costello (Higgins, Liberal Party, Treasurer) Share this | Link to this | Hansard source

I thank the honourable member for Braddon for his question. I can inform the House that the Reserve Bank released its latest quarterly statement on the conduct of monetary policy today, noting that inflationary pressures, which may have been picking up in the first half of last year, seem to have been now contained and indicating that it now expects underlying inflation, currently around three per cent, to fall to 2¾ per cent in 2007-08. The Reserve Bank notes that this reflects:

... both the evidence that underlying inflationary pressures in the second half of 2006 were somewhat weaker than in the first half, and the likelihood that recent falls in world oil prices will result in some dampening effect on cost pressures and inflation expectations.

That is good news because that says—and this is what I said to the House last week—that rather than inflationary pressures picking up it now appears inflationary pressures are coming down. Whereas we had an inflation rate of about 0.8 per cent in some of the quarters in the first half of last year, in quarterly terms the underlying inflation rate is closer to 0.5 per cent. That shows that expectations are well within the target band which the government has set by an agreement with the Reserve Bank of two to three per cent.

We are not out of the woods yet, because with an exceptionally cold northern winter it is possible that more pressure will come back on oil prices. This will take quite a lot of managing. In addition to that, because commodity prices are high and because unemployment is low there are risks that you could have unsustainable wage increases. That will also take quite a deal of management.

I mention in passing that one of the things that makes it easier to handle high commodity prices this time around than in other periods, such as the mid-seventies, is that we do not have centralised wage fixation. If we had a system of centralised wage fixation, which took wage settlements from profitable areas of the Australian economy and brought them back and spread them uniformly across the whole economy, then we would have the kind of inflationary breakouts that we have seen in previous mining booms.

The good thing, of course, is that we have changed the industrial relations system. It would not be possible if we had not done that. Those of us on this side of the House who supported that industrial relations system know just how important that is for Australia’s future. Nothing could be more wanton and reckless than a proposal at a time like this to take industrial relations back to where they were when they let Australia down in the seventies and eighties. That is why we need the Work Choices legislation to handle a very difficult economy at a time like this.

The Leader of the Opposition would have you believe that his economic policy is our economic policy. It was on the TV on the weekend: everything that we have done he wants to do. I suppose that imitation is the greatest form of flattery and we ought to accept it, but I remind the House that, when all the heavy lifting was being done and all of the policy was being put in place, the Leader of the Opposition was voting against all of those measures. He says that he now supports an independent Reserve Bank with an inflation target. Labor opposed it. Labor said that it was illegal. Labor promised to sue me for putting it in place. They now say that they are in favour of balanced budgets, but they voted against balanced budgets and said it would take the economy into recession. They now say they are in favour of reducing government debt, but they did everything they could to stop us wiping out $96 billion of Commonwealth debt. They will now have you believe they are in favour of the Future Fund, but they did nothing to set it up and they have promised to raid it.

They will now have you believe that they are in favour of a more competitive tax system, but they voted against the GST and are in favour, therefore, of keeping FID and BAD tax and stamp duty on shares. They voted against all of those changes which this government put in place, and, of course, many of those tax cuts which the government introduced in 2000, 2003, 2004, 2005 and 2006 they also opposed. Labor opposed all of the hard work to get us to where we now are and they now want to take credit. It is not believable, and the public of Australia should not believe it.