Brett Raguse (Forde, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Treasurer. Will the Treasurer outline for the House how fiscal and monetary policy will continue to work together during the recovery to help ensure sustainable growth?

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

I thank the member for Forde for his question. Both fiscal and monetary policies have been working hand in hand to support our economy, to support jobs and to support small business during this global recession. Indeed, as the Prime Minister was saying before, some very significant interventions took place. They took place one year ago last week. One year ago last week we put in place the bank guarantee and the term ‘funding guarantee’—absolutely essential to ensuring the flow of credit continued in the Australian economy. It was a very important decision that was the subject of much strident criticism by the Leader of the Opposition over a prolonged period of time, and it is one of the reasons why Australia has done so much better than the rest of the world.

One year ago last Wednesday was the anniversary of the economic stimulus package—phase I of economic stimulus. It was followed by phase II in February this year. Those actions combined mean that Australia was the fastest growing advanced economy through to the June quarter—a very good result for Australia. That means many more people were in work and many more businesses kept their doors open because the government moved quickly and powerfully to put in place supports for the Australian economy in the middle of what had become a global recession.

There is an Access Economics report out today which comments on these matters. It makes the legitimate point that it was the interventions by the Australian government—the bank guarantee and of course our three phases of economic stimulus—that have meant that Australia has performed the best of all advanced economies and was the only one to grow in the year through to the June quarter. It makes the comment that Australia’s growth performance has been world beating, because Australians work together and work with the framework put in place by the government to ensure that we minimise the impacts of the global recession on this country.

But Access have cautioned against complacency and have also warned that the economic recovery is likely to be soft and slow. Access stressed that the planned withdrawal of stimulus will mean stiffer headwinds into the recovery—stiffer headwinds than many people realise. So it is the case that both fiscal and monetary policies are being withdrawn gradually as the economy strengthens. It is our job to ensure that the withdrawal of fiscal stimulus does occur gradually and carefully and in a way that does not jeopardise economic recovery. The fiscal stimulus was designed to have a significant impact on growth quickly and then be withdrawn gradually as the economy recovered. Economic stimulus, or fiscal stimulus, had its maximum impact in the June quarter this year. It subtracts from growth in every quarter next year. In combination with the Reserve Bank, this means that fiscal and monetary policy will continue to work in the same direction.

This was a point made by the Governor of the Reserve Bank at a Senate inquiry last month. I want to quote what he said about the design of our fiscal stimulus and what he said about the inbuilt phase down of the stimulus. He said:

Such an outcome would mean that fiscal and monetary policy would be acting broadly consistently, as they did when they were moved in the expansionary direction when the economy was slowing.

This point has been made by many in business as well. They understand that the stimulus is being carefully and gradually withdrawn as we go through next year. They also understand that, given the uncertain international environment, this is the way to proceed. To suddenly withdraw all of the stimulus, as those opposite advocate, would have a dramatic impact on employment and a dramatic impact on business in this economy, and that is certainly not the way to go

Sometimes I contemplate where Australia would have been if the government had accepted the advice of those opposite last February. Unemployment would be far higher, more businesses would have hit the wall because they opposed economic stimulus all of the way. They opposed the bank guarantee as well—a monumental misjudgement from this Leader of the Opposition. Fortunately, we did not take their advice and tens of thousands of Australians are in work and tens of thousands of small businesses remain open for business.