Scott Buchholz (Wright, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the review of the 2011 annual report of the Reserve Bank of Australia by the House of Representatives Standing Committee on Economics and the committee's hearing with senior members of the Reserve Bank, including the bank's Governor Glenn Stevens, in February this year. As a proud member of the House of Representatives Standing Committee on Economics I relish the opportunity to participate and discuss monetary policy settings with my colleagues. The committee also has the opportunity to question the Reserve Bank on monetary policy settings, and that happens twice a year.

When questioning the Reserve Bank about monetary policy and the management of the Australian economy, we cannot ignore the government's fiscal policy settings. This is a feature of the report and has been a feature of much economic analysis subsequent to the report. Unlike the Labor Party, coalition members have a view that Australia's seemingly good fortune is not a derivative of Labor's fiscal management nor the government's finely tuned fiscal policy settings. Rather, the opinion of the coalition members—and we did seek to verify these views in the report with respect to responsible economic management—is that it is really a legacy of the former coalition government.

That is not to say that it has all been bad, but the evidence was there from the Reserve Bank. Much of Australia's ongoing economic success and the resilience and strength of the Australian economy were also due to our geographic location more than they are from any brilliance by the current Treasurer. One of the reasons why our terms of trade are fantastic at the moment—record highs—is because of demand in our resources sector. Make no mistake: China wants our raw materials. Our trading partners want coal, they want iron ore, they want our bauxite. We are well placed as a nation to continue to serve them.

The testimony of the Reserve Bank governor was clear. Australia will continue to have economic challenges in the future as we undertake a very significant period of structural reform across the economy. When the Reserve Bank governor says that Australia will continue to have economic challenges in the future as we enter very significant periods, I counsel my colleagues, when pinning their economic credibility to a wafer-thin surplus in such a volatile market, that we should move into the economic arena with caution, in particular with our forecasting of budget surpluses or deficits.

We will continue to see pressures being placed on the banks with respect to their funding costs, and there will need to be continual revisions of interest rates and the official cash rate by the Reserve Bank to get the balance right between inflation and economic growth for Australia into the future. Since the report was tabled we have seen the inflation rate fall under the inflation range and we have seen the Reserve Bank move to stimulate the economy in the way of a movement in the cash rate.

However, talking of banks, it is perplexing to the Australian people that, while banks claim the cost of funds is a major source of their increasing costs, they still manage to somehow produce record profits. Since this report was tabled we have seen inflation move, as I mentioned before. I thank heaven for the independence of the Reserve Bank and its ability to act to stimulate the softening economy. I particularly note the comments in paragraph 2.9, page 7, of the report:

There are sectors of the Australian economy which are experiencing average performance. Some are weak relative to historical averages, others stronger.

In paragraph 2.13, it says:

Global growth is now expected to be below trend in 2012 …

I come from the electorate of Wright where I have very little or no linkages to the resources sector, so I do not experience the spin-off of the two-speed economy when the resources sector is going gangbusters. I have made the comment many times in the public arena that the electorate of Wright is the economic weathervane of the nation when it comes to that softer part of the economy—the mums and dads who have no linkages to the resources sector. I can assure the committee and the House that there are sectors in my electorate that are doing it extremely tough in the current conditions. With reference to the labour market, the RBA advises that the unemployment rate is drifting up, to 5.5 per cent, and those predictions were emulated by Treasury modelling recently. It will be interesting to hear the response of the RBA to the participation rate, which by all accounts is falling and having an impact on the capacity of families to meet the growing demands of household cost-of-living pressures and, additionally, having an impact on the small- and medium-sized business sectors.

Speaking of the participation rate, we need to be mindful that, whilst we may see reports that the labour market is at 5.5 per cent for unemployment, if those unemployed are doing 38 hours a week, and through economic pressures their labour participation drops back down to 20 per cent, it will not influence the 5.5 per cent or the overall percentage rate but it will have an impact on families, especially on the money that flows through the household. It will be interesting to hear the RBA's response to the participation rate, which by all accounts is falling and having an impact on families.

If this government had managed the surplus, or the buffer as it is now referred to, to the tune of the $20 billion that we left them, our fiscal and monetary positions may well have been very different from those today. I would like to offer my respect and gratitude to the outgoing members of the RBA board, particularly Donald McGauchie and Warwick McKibbin. We do appreciate the incredibly valuable service that both gentlemen provided to the RBA. We welcome the appointment of the new members to the RBA and we trust that they will provide counsel and wisdom to the Reserve Bank of Australia in the same capacity as their predecessors. We appreciate the expertise they provided for the good of Australia and its people in developing sound monetary policy settings. I wish them well in their new chosen fields and their continuing contribution to the betterment of the Australian economy and the fiscal and monetary outlook.

Stephen Jones (Throsby, Australian Labor Party) Share this | Link to this | Hansard source

My contribution will focus on the broader context in which the Reserve Bank conducts its business. As you would know as a member of the committee, Mr Deputy Speaker Leigh, much of the discussion and interchange at the hearings we have with the governor and deputy governors of the Reserve Bank focus on the broader economic context in which economic policy is made, and those are some of the areas to which I would like to direct my points.

The 2011 annual report of the Reserve Bank that we are discussing today is in large part based on the hearing held in Sydney on 21 February. Since that hearing, we have seen some significant movement in the central bank's approach to interest rate settings, something that has been very welcome to me because, as you would know, Mr Deputy Speaker, I represent an electorate that has traditionally had a very strong manufacturing base. It also has a university, and a high percentage of its workforce is employed in the retail sector. We are being buffeted by the very strong headwinds that are largely impacting regions like my own, particularly as a result of the high Australian dollar. If I have been critical of some of the direction of monetary policy in this country over the last two to three years the criticism would be that the Reserve Bank, to its credit, has been a real tiger when it comes to chasing its mandate on inflation but it has been less quick off the mark when it comes to considering the unemployment and employment parts of its mandate. For people in this place who represent electorates like my own we know that, whilst there is a necessity to take account of the mining boom that is going on around the country, electorates like Throsby and large parts of eastern Australia are not enjoying the benefits of the mining boom around which so much of our monetary and economic policy is based. I do welcome the significant move that the Reserve Bank made in reducing interest rates by 50 basis points. I repeat the calls that have been made by the Treasurer and others on this side of the House who would like to see the major lenders in this country following suit and passing on those interest rate cuts in full.

If you listen to economic debates around this House, you could be forgiven for thinking that the state of the Australian economy is in lockstep with the economies of Europe or even North America. Of course nothing could be further from the truth. Having recently spent a week in Europe, I can tell you I never met a person who would not trade places with us when it comes to employment opportunities and the economic circumstances being faced by Australians. Australia has been through the worst global recession in 80 years, with an aftermath in some countries as long and as turbulent as that which was experienced during the Great Depression. Despite all of this, our actions have helped to ensure that the domestic economy is now more than 10 per cent larger than it was before the global financial crisis. By contrast, output in the United Kingdom, Europe and Japan is today still well below where it was at the beginning of 2008, with the UK and much of the eurozone back in recession.

Australia's economy is expected to grow at a further 8.5 per cent by mid-2014. Again, this is more than any of the big developed economies that we normally compare ourselves with. With the Australian economy returning to a trend of growth, it is right that the government moves back into surplus, allows room for business to expand and gives the RBA more flexibility when it comes to rate cuts as and when it sees fit. For the first time in our economic history, the Australian economy has been rated triple-A by all three global credit rating agencies. It is a small and elite club. The European sovereign debt crisis means nine countries either lost their triple-A ratings or were put on a negative watch. The United States has lost its triple-A rating and a few years ago this would have been simply unthinkable. I make these observations because as you travel the halls of this place and read some of the commentary, not the informed commentary, within the popular press, you could be forgiven for thinking that Australia was in the same position as many of the other economies that I talk of. We are in a small club that has a triple-A rating and, for the first time in our history, we have achieved that triple-A rating by all three of the global credit rating agencies.

As a share of GDP, tax revenue is at the lower level it has been for nearly 20 years. This is an important point to make, given that this debate is occurring not 24 hours after the Treasurer of Australia stood in the House of Representatives and handed down a budget which will bring us back into surplus in this financial year. This is at a time when the GDP-tax revenue ratio is at its lowest for 20 years. It is a remarkable achievement. If you consider that the previous coalition government saw revenues increase by almost two percentage points of GDP during its term, as the Treasurer observed in an address to the Press Club earlier today, this is nothing short of a remarkable achievement. Since the 2007 federal election, over five budgets, revenues have fallen by more than 1½ percentage points of GDP. If we had had the same average tax-to-GDP ratio as the previous government, revenue in 2012-13 would be $24 billion higher. That would give us a budget surplus of around $25 billion, the largest nominal surplus in Australia's history in some of the most challenging economic times that our nation has faced. We have steered the country through the global financial crisis and kept unemployment rates below six per cent—as far as I am concerned that is still high, and I know you would share that view, Mr Acting Deputy Chair. We have kept a lid on debt, ensured that we are still growing as an economy and ensured that we have a plan not only to bring this budget back into surplus but to put in place the long-term reforms that are going to be needed to ensure that we remain in surplus on average over the economic cycle so that we are not building structural deficits into our budget. This is something that when the economy was raining gold bars on those opposite they never managed to do. They never took any of those big, tough decisions to remove the structural—the underlying—deficits that were built up under their watch. They never managed to do that. So it is nothing short of a remarkable achievement when the Treasurer is able to stand in the House of Representatives and deliver a budget which will see us in surplus over the financial year.

I will interrupt here and make this point, because there has been a lot said in this place and in the popular press on the subject of surpluses. It seems to be an article of faith from those on the other side of the House that there is something intrinsically good in delivering a budget surplus, that irrespective of what the economic circumstances are they are committed to delivering budget surpluses. I cannot think of a more boneheaded approach to economic policy than that which I often hear espoused by those on the other side: it is an article of faith that we deliver surpluses. When they stand and make statements like that they are saying that it is an article of faith for those on the other side to tax the Australian people more than they need to to run the operations of government. That is ultimately what they are saying: if they are saying that they are committed to running budget surpluses irrespective of what the underlying economic circumstances are, then they are saying that they are committed to running budget surpluses and taxing the Australian people more than they absolutely need to.

So we do have some challenges and we do have some threats. Unemployment is higher that it should be in some areas, while we have labour shortages in other areas. We have infrastructure bottlenecks, largely due to the deficit in infrastructure spending led by those on the other side. And we do have some confidence issues, as we have those on the other side trawling for economic misery. That cannot help but impact on consumer sentiment and investor sentiment. But despite all of this, in the words of the Reserve Bank governor: as he travels around the world he has never met a central bank governor who he would rather trade places with.

So I commend the report to the House, and I congratulate the Treasurer on the excellent job he has done in ensuring that fiscal policy is in step with monetary policy in this country.

Debate adjourned.