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 2010 (Second Report), together with the minutes of proceedings.

The latest hearing took place shortly after the flooding of much of eastern Australia, especially Queensland, and after Cyclone Yasi. Australians will never forget the images of city centres, suburbs and whole towns under water, still less loved ones, neighbours or colleagues lost to flash floods and related incidents. These disasters were mitigated to a degree by the combined efforts of the armed and emergency services, governments at all levels, police and the general public. The generosity with which so many Australians donated time and effort to assist neighbours and strangers alike revealed a reservoir of civic resilience which has been reassuring to witness.

While the ultimate cost of the floods and Cyclone Yasi has yet to be fully quantified, it is clear that the expenses involved with replacing or renovating housing, industry and infrastructure alone will have a macroeconomic effect, to say nothing of the impact on household expenditures of all sorts, the nationwide market for fruit and vegetables or the export of coal. It is clear that Australia's economic situation is almost ideally placed to support the massive task ahead. While the extreme weather conditions are expected to reduce real GDP growth considerably in the last quarter of 2010 and the first quarter of 2011, perhaps by as much as up to one full percentage point, growth should pick up after this.

The stimulus from the rebuilding effort is expected to bring about a temporary rise in CPI inflation, most likely to be three per cent in the June quarter of 2011. After this, inflationary pressure should ease. Monetary policy is on target to meet the goals of its longstanding policy of maintaining inflation between two per cent and three per cent, albeit the last inflation figure was slightly more than expectations of economists in the market.

The drivers for growth are diverse, but the principal one is our exceptional terms of trade. Several times the Governor of the Reserve Bank of Australia advised the committee that our current terms of trade constitute a once or twice in a century event. This is something we need to make sure that we continue to plan for, but by any measure Australia is exceedingly well placed. When one looks at the measures of unemployment, debt, our deficit and our growth projections and compares us to the European community or to the United States, one can only be glad that we are in Australia and that the government acted in the way it did during the global financial crisis, acting decisively with its stimulus packages. It had a resoundingly good report from the Reserve Bank governor and continues to get great reports from the Reserve Bank governor every time he is before us.

Without the actions of this government in relation to that, without doubt Australia would be in a much worse position. It is worth reminding everyone of the position that Australia occupies compared to those around the world. In Spain, unemployment is at 20 per cent. Unemployment and inflation are on the rise in the United Kingdom. The United States' unemployment rate, while slightly lower than it was six months ago, still has an 'eight' in front of it, and they have enormous fiscal problems. That is not the situation in Australia. We have both fiscal policy and monetary policy moving in the same direction—that is, a tightening of both—which is making sure (1) that Australia is going to be back in surplus, in terms of our fiscal position, by 2012-13, and (2) that we are in the best position possible to capitalise on the mining boom mark 2. Without the extraordinarily important work that the Reserve Bank has done to place us in this position and the work of the Treasurer in relation to our fiscal settings, Australia would not be in the position that it is in today.

In conclusion, on behalf of the committee I again thank the Governor of the Reserve Bank, Mr Glenn Stevens, and the other representatives of the Reserve Bank of Australia for their appearance before us on 11 February 2011. The next public hearing will be on 26 July 2011 in Melbourne. I also thank the committee secretariat for the fine work that they did in supporting us through this process.

Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

I am pleased to rise to speak to the Review of the Reserve Bank of Australia Annual Report 2010 as a consequence of the hearings that the House of Representatives Standing Committee on Economics held with the Reserve Bank governor and others in February this year.

For coalition members of the committee it was another opportunity to ask the Reserve Bank about predominantly the monetary policy settings and, to a lesser extent and indirectly, the fiscal policy settings of government with respect to the overall management of the Australian economy. As I sat and listened to the chair's contributions in this House only a moment ago I reflected on a number of features of the evidence that was forthcoming from the Reserve Bank governor and on other economic commentary and analysis that has been put forward over the past, say, six months. I fail to understand how such an oblique picture of the management of the Australian economy can be formed by Labor members opposite when, in reality, there is a very different story to be told in the testimony both of the Reserve Bank governor and of economic commentators.

There are several inescapable features of the Australian economy and its management by the Labor government since its election that have come to the front. Of these, there is no doubt that Australia is travelling quite well economically. The reason, though—and this is clear, based on the governor's testimony—effectively comes down to one word: China. There is absolutely no doubt that the Australian economy is travelling exceptionally well as a direct result of the as yet unfaltering demand and consumption of Australian resources by China and, to a lesser extent, India. These two countries, crucial to driving demand in our region and more broadly throughout the global economy, are the reason that Australia has travelled so very well. A second crucial element has been the state of the Australian economy going into the so-called GFC. There is absolutely no doubt that Australia's net asset base, Australia's exceptional healthy surplus and Australia's strong and consistent regulatory framework when it came to our banking system operated to maximise Australia's preparedness to deal with the challenges that were brought forward by the GFC.

Despite claims by the Labor Party and by the chairman of the committee sitting opposite, we cannot escape the fact that, yes, from an economic point of view Australia is still sitting pretty in relative terms but its position relative to other countries has been massively eroded by this government's fiscal and spending recklessness. The mere fact that only a couple of weeks ago we saw Australia's budget position eroded to nearly a $50 billion budget deficit and our net borrowings increased to $107 billion indicates that this is a government whose spending is completely out of control. This is important with respect to monetary policy, because although slight spikes in inflation have been hinted at as a consequence of Cyclone Yasi and the flooding that took place in Queensland, there are also other factors at work that are compounding in the Australian economy in two central veins. The first is to some extent the importation of inflationary pressures from China. For years China was exporting deflation to the world but now we see Australia importing inflation from China. The second is the Labor Party's industrial relations reforms, which have brought about less flexibility and will drive wage price pressures in the future. I note in addition to that a quote from the Reserve Bank annual report. It is, in particular, paragraph 2.22, which talked about some of the pressures on electricity prices, for example. The governor said:

We have not seen, at least to date, large increases in utility prices come primarily from generation costs. In time I think we will, but at the moment it is really about the networking, the distribution expansion that is going on.

That is as clear a sign as you will ever get from a governor of the Reserve Bank that Labor's carbon tax will also lead massively to inflation and that these things will force up interest rates.

Bruce Scott (Maranoa, National Party) Share this | Link to this | Hansard source

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