Craig Thomson (Dobell, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee’s report entitled Review of the Reserve Bank of Australia Annual Report 2007 (first report), together with the minutes of proceedings.

Ordered that the report be made a parliamentary paper.

The House of Representatives Standing Committee on Economics is responsible for scrutinising the Reserve Bank of Australia and for ensuring its transparency and accountability to the parliament, the community and the financial sector. The RBA governor’s appearance before the committee at biannual public hearings is an important element of the bank’s accountability. So too is the Rudd government’s initiative in making sure that the minutes of those hearings are published and that the decision of the Reserve Bank is announced on the day. It is also important to note that legislation that has passed through this House and is with the Senate in relation to the appointments of the Reserve Bank is part of this scheme of increasing the transparency of the Reserve Bank and its operations.

The upward trend in inflation has prompted the Reserve Bank of Australia to increase the official cash rate to 7.25 per cent—up 75 basis points since the former committee met with the bank in August 2007. The RBA has increased the cash rate 12 times since 2001, a total of 100 basis point increase from 8 August 2007, which was yet another strong year for the Australian economy, with growth of more than four per cent over the year to the December quarter. Domestic demand expanded by 5.5 per cent.

The RBA’s forecasts for inflation indicate that underlying inflation should start moderating from June 2009 and reach 2.75 per cent by December 2010. The CPI rose by 1.3 per cent in the 2008 March quarter, lifting the year-ended rate to 4.2 per cent. The underlying inflation rate increased by 1.2 per cent in the March quarter, taking the year-ended rate to 4.2 per cent.

It is interesting that we see this analysis by the Reserve Bank in relation to the pressures that we have with inflation because we have members opposite telling us that inflation is nothing more than a charade, a fairytale or it does not exist. This prompted some questioning of the Reserve Bank governor as to what would actually happen if inflation were to be ignored. What would happen if we took the position of the opposition and ignored entirely the problem of inflation, as the former government did despite 20 warnings from the Reserve Bank? The governor’s response was unequivocal. He said, ‘Ultimately you end up with higher interest rates.’ That is right: ultimately you end up with higher interest rates if inflation is ignored.

Another area where there was considerable debate and questions was in relation to the labour market and the effect that Work Choices may have had on the economy. The governor was asked how productivity is best achieved. His answer was: ‘Why take a whole bunch of things out of the equation? Let them sort it all out as widely as possible. You also have to have fairness in the system. These are considerations that need to be kept in mind, as everyone knows.’

When asked about signs of wage pressure in relation to what might happen now that Work Choices has been dismantled, Mr Stevens said, ‘The labour market has performed very well in adjusting to the nature of the shock.’ So he was quite clear that the demise of the unfair and unjust Work Choices was not going to have a major effect on wage pressures and that narrowing the issues on which people could bargain was not in the best interests of increasing productivity.

Finally, I would like to acknowledge and thank the Governor of the Reserve Bank, Mr Glenn Stevens, and the other representatives for appearing on 4 April; Mr Kieran Davies, who provided a private briefing; Steven Boyd, the committee’s secretary and all of his staff; and the other members of the committee. The next hearing with the RBA will be held on 8 September 2008 in Melbourne. The public hearing in September will be an opportunity for the RBA to report on the most recent data. The committee will use this opportunity to continue to scrutinise the RBA over its conduct of monetary policy and see the most up-to-date forecasts for inflation, growth and interest rates.

Chris Pearce (Aston, Liberal Party) Share this | Link to this | Hansard source

I rise as Deputy Chairman of the Standing Committee on Economics to speak to the Review of the Reserve Bank of Australia annual report 2007 (first report). This was an interesting report, as you have just heard from the chair, the member for Dobell, because this was the first time that the Governor of the Reserve Bank of Australia and senior colleagues had had the opportunity to be questioned by the Australian parliament following the election last year. Of course it was during that election that the current government promised to lower the cost of petrol, to cut the cost of groceries and to lower home loan interest rates, and we all know now as a matter of history that, since the Rudd Labor government was elected, all three of those things have in fact gone up.

The report is a detailed report and it has been tabled, but I would like to focus on two issues in the report if I could. The first one is the nonsense that the Labor Party and particularly the Treasurer have been peddling about the inflation genie being out of the bottle. Even today in question time we heard the Prime Minister talking about the inflation monster. So the genie has now been converted and is now a monster. I asked the governor a very direct question. I said:

Some people have said that ‘the inflation genie is out of the bottle’. The plain meaning of an expression or a phrase such as that is that something, if you like, is out of control, off and running, cannot be controlled, cannot be fixed—it is all over the place. My question to you is: would you agree that inflation is out of control?

I got a very interesting answer from the governor. He said.

I do not want to comment on colourful things that are said in public debate, but what we have said is inflation has risen and that is a problem. It has to be dealt with and we are dealing with it. We will contain it and it will come down. Is it out of control? No, I have never said that. I have tried, if you like, to make balanced comments that one cannot say that there is not a problem. There is a problem, but I do not think it is out of control.

So we have the Prime Minister calling it a monster, we have the Treasurer saying the genie is out of the bottle, but the Governor of the Reserve Bank has said that inflation is not out of control.

The other aspect that I want to particularly touch on—and we heard the chairman of the committee continue to peddle this fallacy just a minute ago—is about the 20 so-called warnings. This is a very interesting line that the Labor Party continues to try to run. Again I asked the Governor of the Reserve Bank a particular question. I asked:

Could you outline to the committee what warnings you have issued to the current government?

The governor said:

Warnings about what in particular?

I then said:

Have you issued any warnings to the current government?

The governor said:

I am not sure what we mean by ‘issuing warnings’. We meet with the Treasurer monthly, as has long been the tradition, and talk about the economy and the various risks it faces. I do not think that would qualify as: ‘Treasurer, I am warning that you’ve got to do this or that.’ Most of our conversations with governments over the years have not been of that sort of nature. They are an exchange of information and opinion about what is happening, what issues may be arising and how we are thinking about things.

I then asked:

Did you issue any warnings to the previous government?

That was the previous Liberal-National coalition government. Mr Stevens said:

About?

I said:

Well, did you issue any warnings to the previous government?

We have just heard the chair of the committee say that there were 20 warnings, and this is what the Governor of the Reserve Bank said to my question about whether he issued any warnings to the previous government:

I cannot recall us writing a document saying, ‘We warn you of X,’ if that is what you mean.

So the Governor of the Reserve Bank is on the Hansard record as saying that there were no warnings issued to the previous government; yet we have the Prime Minister running out there peddling this line. We have the Treasurer and even the chairman of the committee five minutes ago saying that the previous government ignored 20 warnings when the Governor of the Reserve Bank of Australia said in Hansard that the Reserve Bank did not issue any warnings whatsoever.

Dick Adams (Lyons, Australian Labor Party) Share this | Link to this | Hansard source

Order! The time allocated for statements on this report has expired. Does the member for Dobell wish to move a motion in connection with the report to enable it to be debated on a future occasion?

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

I move:

That the House take note of the report.

In accordance with standing order 39, the debate is adjourned. The resumption of the debate will be made an order of the day for the next sitting.