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

by leave—The Australian economy has performed exceptionally well and suffered less from the impacts of the global financial crisis than almost all other advanced economies. The February 2010 hearing with the Reserve Bank was set against an optimistic forecast for growth and stability. It is notable that Australia was one of the very few advanced economies not to fall into recession.

Through 2009 gross domestic product grew by about two per cent, and in 2010 GDP is expected to reach about three per cent. Unemployment is trending down and hours worked are increasing. The strength of the upturn in the Asia-Pacific is quite strong, which is helping Australia to achieve higher growth prospects. In the large industrial countries, however, growth has been more tentative. The Organisation for Economic Cooperation and Development, the OECD, examined the impact of the global recession on growth prospects for member countries. It found that the near-term adverse impacts on Australia’s potential output were amongst the lowest in the OECD. Both fiscal stimulus and monetary stimulus have meant Australia has averted the permanent skills and capital distraction that generally accompanies deep downturns and have meant less permanent damage to our economy.

When the government announced its Nation Building Economic Stimulus Plan in February of last year, our economy had contracted in the December quarter of 2008 and was on the brink of recession, and we were facing the bleak prospect of a million Australians out of work. As a government we were determined to do whatever we responsibly could do to protect our economy, to protect jobs and to protect small business. One year on, a combination of economic stimulus and the resilience and hard work of Australian families and businesses has meant we have avoided recession and saved the jobs of tens of thousands of breadwinners. Together we have achieved stronger growth than any other advanced economy. We have created 112,000 jobs over the past year and have so far kept unemployment to under six per cent. Australia’s strong economic performance was highlighted by global ratings agency Standard and Poor’s earlier this month in the Asia-Pacific Sovereign Report Card, which noted:

Australia has been the best performing developed economy in the world in recent years …

There are encouraging signs of Australia’s continued recovery and more evidence of how well our economy has performed in the face of strong headwinds from the global economy. The recent retail trade figures show that the value of retail trade grew by 2.1 per cent through 2009, notwithstanding a 0.7 per cent fall in December. The volume of retail trade rose by a strong 1.1 per cent in the December quarter to be 3.4 per cent higher through 2009. This demonstrates the role stimulus has played in giving consumers the confidence to keep spending. Building approval figures were also encouraging. These showed that total residential building approvals were up 2.2 per cent in December, increasing by 53.3 per cent over 2009. This was the strongest annual growth in almost eight years.

Last month the Access Economics Investor Monitor showed that investment in our economy was helped by the government’s infrastructure stimulus. Compared with a year ago, there has been a very big increase in the value of defined projects that are now going ahead. Our nation-building investments in schools, roads, rail and ports are a big part of the reason for that improvement. Access Economics said:

… significant government investment also played a very strong helping hand, most notably the Federal Government’s schools upgrade program … economic infrastructure projects are a substantial part of the investment agenda, led by Federal and State Government spending.

As a result of Australia’s positive growth prospects, the Reserve Bank of Australia began lifting the policy cash rate from its emergency lows of three per cent. The cash rate was raised three times in succession between October and December 2009. In March 2010, the cash rate was lifted another 25 basis points, taking the new cash rate to four per cent. It is worth noting that this is still some 300 basis points lower than when we came to government.

During the hearing, the committee examined the RBA on the key forecasts for the economy, focusing on inflation and growth and their influence over the policy cash rate during the next 12 months. The committee examined some of the possible constraints to growth and possible impacts which could lead to inflationary pressures. In addition, the committee examined issues affecting bank funding.

The committee also dealt with the public claim by Senator Joyce that Australia might be at risk of defaulting on its sovereign debt. The committee is of the view that a claim like this is irresponsible and has the potential to undermine the economy. The governor advised:

There has never been an event of sovereign default by Australia as far as I know, and I very much doubt there ever will be.

Economists also called Senator Joyce’s comments irresponsible, especially at a time when financial markets were jittery and overseas investors might have taken his comments seriously. A key ratings agency, Standard and Poor’s, reacted to the statement about sovereign debt and said that it rated the debt of the Australian government at AAA, with a stable outlook. It said that AAA is the highest rating and indicated the agency’s opinion that the government has an extremely strong ability to meet all of its debt obligations. Standard and Poor’s added that the AAA rating was indicative of the extremely strong ability to meet financial obligations and, therefore, in their opinion, there was very little chance of defaulting on debt.

In conclusion, on behalf of the committee I would like to note that this is the 50th anniversary of the Reserve Bank of Australia. On 14 January 1960, the RBA commenced operations under its first governor, Dr HC ‘Nugget’ Coombs. The committee notes the contribution that the RBA has made to the stability of the Australian economy and looks forward to its continuing contributions in the years ahead. On behalf of the committee, I would also like to thank the Governor of the Reserve Bank, Mr Glenn Stevens, and other representatives of the RBA for appearing at the hearing on 19 February. The next public hearing will be on 27 August 2010, in Canberra. I commend the report to the House.

Jamie Briggs (Mayo, Liberal Party) Share this | Link to this | Hansard source

I join with the member for Dobell, following his largely high-quality contribution in this place, in thanking the governor and the staff of the Reserve Bank for their cooperation at the hearing. I also acknowledge the work of the committee secretary, Mr Boyd, and his staff in putting this report together. They obviously do a lot of work to get these things ready.

I thought we had a very high-quality discussion with the Reserve Bank governor. It is one of the main opportunities that the parliament has to interact with the Reserve Bank governor and ask about issues that are driving his thinking in relation to dealing with monetary policy. I thought the Reserve Bank governor was very frank with the committee. I think he was very honest and open about where he thinks monetary policy is going and the factors playing into that. It was welcomed by our side of politics, but probably not by the others so much, when the Reserve Bank governor quite clearly outlined that there is a link between reckless fiscal spending and higher interest rates. I thought that was a pretty telling moment in the morning’s proceedings.

The other aspect that the governor made very clear was his very deep and clear concern that the re-regulation of the workplace in Australia is leading to increased pressures on wage-price increases, leading to bottlenecks in Western Australia through increased strikes, as we have seen. The governor expressed deep concern about that and the impact it will have on our productive performance and, ultimately, on not just interest rates but also the employment levels of Australians. The governor very specifically made that point. I think that is of major concern. It is heartening to see that the putative Prime Minister, the Deputy Prime Minister, indicated through the Australian newspaper yesterday that she is considering winding back some of her more draconian union based laws. So I think those were the major policy aspects impacting on monetary policy in Australia that we got from the hearing.

I thought there was some other interesting discussion about the structural issues in and around the bank. We had a discussion with the governor about claims aired through the ABC Lateline Business program last year of pre-leaking of board decisions prior to the board meeting. I thought the governor was very strong in his dismissal of those accusations, and it was a good opportunity for the governor to clear that up. It was an important issue; interest rate movement is very market-sensitive information and claims that that information was being pre-leaked to the market were obviously worrying. They were worrying for this place and obviously also for the governor, because he was very strong in his dismissal of those accusations.

We also had a very good discussion about the board structure. There are some who claim, and I have some sympathy for this claim, that we do need to consider this given, as the Reserve Bank governor himself has identified, that there is an increasingly difficult role for the central bank—a more complex role, interacting in global movements. There is some merit in reconsidering the structure of the Reserve Bank board. This is not because it has done a bad job over the years; certainly in recent times it has performed quite well. Part of our role in this place, and an important role of this committee, is looking at the issues that will need to be addressed by the Reserve Bank and by the parliament in the future. It is an appropriate moment, given that the governor in his 50th anniversary speech highlighted the more difficult circumstances in which the bank is operating, to give some consideration to whether there need to be some more market-based professionals, market-based economists, on the board. The governor, while supporting the board, I thought took on board some of those questions and we had a reasonable discussion. I personally would like to see that sort of review or consideration take place, to see whether it is high time to change the structure of the board.

Against that there is the developing and important issue of the consideration the governor is giving to changing the way the bank operates in respect of leaning against the wind, where the bank sees a developing problem in an area like the housing market. We had a very good discussion on this. It is a contentious issue and I think it is a very big policy issue. I am very concerned to make sure that, if that decision is made, it is made in conjunction with the government of the day, with the parliament, and there needs to be a full and open debate about whether that is a good policy or not. I am concerned that with a very weak and ineffective Treasurer these decisions might be made without due consideration being given to them in this place. I am concerned to ensure that the governor undertakes any changes to the way he operates in setting monetary policy in conjunction with the parliament and the Treasurer of the day. There should be a full and open debate about this issue, if in fact we decide to go down this path. It would be a massive change to the way the bank operates and it would have a very real-world effect on people’s house prices and the interest rates that they pay. It is a developing issue. Yes, it is technical and it is pretty dry and it is not a matter that the Daily Telegraph will splash across its front page—the member for Banks does not need to worry about that too much—

Daryl Melham (Banks, Australian Labor Party) Share this | Link to this | Hansard source

They have in the past; they will in relation to the market.

Jamie Briggs (Mayo, Liberal Party) Share this | Link to this | Hansard source

They will in relation to decisions on rates, absolutely, so there is a real-world consequence which we face as members of parliament, and how the bank sets its rates and makes its decisions is a very important issue. They should not be decisions made purely by the bank. That is my point, and I think the member for Banks and I are probably in agreement on that. If the bank is going to change the way it makes its decisions then we should be part of that process. That is a developing issue. With those short remarks, I acknowledge the work of the chair of the committee, who works very hard on this part of his responsibilities, and also again the secretary and the bank.

Debate (on motion by Ms Hall) adjourned.