Kelly O'Dwyer (Higgins, Liberal 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 2013 (first report), together with minutes of the proceedings.

Report made a parliamentary paper in accordance with standing order 39(e).

I now wish to make a statement in relation to that report. I am very pleased to be presenting the first report of the economics committee for the 44th Parliament. The committee holds two public hearings each year with the Governor of the Reserve Bank, and this report follows the first of these hearings for the new committee, on 18 December 2013, following the federal election.

The RBA noted in its November 2013 Statement on monetary policy that 'the prospect of a pick-up in conditions in many advanced economies is likely to see growth for the world as a whole improve from a below-average pace in 2013 to around average in 2014'. The RBA also forecast 'a little above average' growth in Australia's major trading partners in 2014.

Australian growth was two to three per cent of GDP in 2013 and the RBA assessment is that inflation will remain consistent with the medium-term target over the next one to two years.

The economies in China, the United States, Japan and Europe are all showing signs of recovery. The governor commented that global financial conditions remain very accommodative, market volatility has abated, and there is ample funding available for creditworthy borrowers.

Despite these initial signs of recovery in developed economies, there is still a lot of work required to avoid further economic instability.

The recent G20 meeting in Sydney has brokered a hugely significant accord to increase global growth by two per cent above the current trajectory over the next five years. Australia has an important role in helping to realise this goal by implementing policies that will achieve workplace reform and boost productivity.

At its December and February meetings, the RBA board judged that it was prudent to hold the cash rate steady at 2½ per cent given the substantial degree of policy stimulus that had been imparted and evidence of its effects. The board indicated in its February statement that market pricing suggests no change to the cash rate is expected for about a year.

In his statement on the board's decision, the governor stated that monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. The governor's view is that the most prudent course in this regard is likely to be a period of stability in interest rates.

The exchange rate has been a significant source of economic uncertainty and the Australian dollar has appreciated significantly over the past decade.

The governor commented that a lower rate is likely to be needed for balanced growth, which would also likely see a sooner than forecast growth increase with some upward pressure on inflation. The governor does not favour intervention in the exchange rate at this stage.

The RBA welcomed the one-off $8.8 billion grant to the Reserve Bank Reserve Fund which will be made by the government before the end of the financial year. The MYEFO states that this grant will ensure that the RBA is adequately resourced to conduct foreign exchange and monetary policy operations. The governor stated that this one-off injection of funds will be important in bringing the fund up to 15 per cent of the bank's assets at risk, the level sought by the RBA, on as early a schedule as possible.

Australia is transitioning to a post-mining-boom era with both the MYEFO and the RBA forecasting declining investment in the resources sector. This may create opportunities to invest in other sectors of the economy, including infrastructure. Such investments will be needed to realise productivity gains and future growth, but the decision making in this regard must be sound. I again note that Australia played a very leading role in hosting the G20 last week, as well as the business working group that is focused on how we can get more productivity-enhancing infrastructure not only in Australia but in those countries that are part of the G20.

Finally, on behalf of the committee I would like to thank the Governor of the Reserve Bank, Mr Glenn Stevens, and other representatives of the RBA for appearing at the hearing on 18 December 2013. The committee looks forward to its next hearing with the governor this coming Friday in Sydney.

I commend the report to the House.

Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Link to this | Hansard source

On behalf of the opposition I am pleased to speak to the review of the Reserve Bank of Australia annual report 2013. I thank the chair of the committee and also acknowledge the presence in the chamber of my colleagues the member for Rankin and the member for Charlton. I echo the sentiments of the chair in expressing gratitude for the time and assistance of the RBA governor and his senior executives who appeared before the committee in December. I also express appreciation for the great work of the committee secretariat.

While the world has managed to avoid the type of collapse feared in the aftermath of the worst economic conditions in nearly eight decades, many countries are still dogged by lower than average growth, stubborn unemployment and, in some cases, having had to cope with double-dip recessions. Since our prosperity can be affected by the health of our trading partners, the RBA's assessment of global economic strength is crucial. Looking to the world stage, the RBA noted in December that there were positive signs emerging from Europe, the US and China. But the tide of perception has started to shift, even since then. In Europe, for instance, anxiety about the future of the European financial system has been replaced by concerns, expressed via the IMF in January, about the signs of potential deflation. In the US, relief surrounding tapering has been muted by concerns—as expressed by new Federal Reserve Chair Janet Yellen—about soft data appearing over the last six weeks pointing to less favourable numbers on jobs, housing, retail sales and industrial production. In China the economy has defied predictions of contraction, but minds are directed towards a continued growth of its shadow banking system and its possible impact within and beyond China.

In the Australian context, we need to be exceptionally mindful of this—especially considering the RBA take on lower-than-trend growth. While keeping an eye on the soft world economy, we should be concerned about the possible impact on our own economy of confused and contradictory decision making. It is taking a long time for this government to respond in an adult way to the reality plaguing governments the world over—subdued economic conditions, sporadic job growth and revenue refusing to lift in the way it did. In many cases it appears that this government's actions could weaken our economy at a time when the world economy remains weak. We have seen a government unable to respond to job shedding occurring under its watch at the rate of one job every three minutes since its election. Retailers now express concerns about the impact of this on discretionary spending at a time when the RBA has observed subdued growth in private domestic demand.

We have seen a government send conflicting signals about fiscal strategy, contemplating contractionary expenditure cuts while planning to levy business to fund an excessive Paid Parental Leave scheme. We have seen a government block access to crucial foreign investment for firms like GrainCorp while seemingly chasing out of the country firms like Holden, but then seeking foreign capital for Qantas. We have also seen the government not only refuse to consider co-investment in firms that are helping boost economic activity in regional Australia, but then pressure these firms to aggressively cut wages and undermine purchasing power of families within those regions. Disturbingly, the RBA governor warned in December that it was:

… difficult to predict the timing and strength of the expected upturn in non-mining investment.

But in the last week we have seen new figures pointing to a sharp contraction in nonmining business investment at a time when it is needed to offset the anticipated slide in mining sector investment.

On top of this, while repeatedly trying to condition the broader public about expenditure cuts, this government's other spending decisions have been extraordinary, most notably its decision to grant the RBA close to $9 billion in government support, as referred to in this report. Although seeking to suggest the RBA was pushing for the grant, it was obvious from our hearings that the Treasurer himself had not only decided the grant should be paid but it was he and he alone that determined that the $8.8 billion in scarce funds should be paid in one lump sun. And while in claiming this money was urgently needed, the Treasurer avoided mentioning that the funds would not be paid immediately but sometime in first half of 2014 and that the RBA would actually be in a position to provide a dividend to the government in the second half of 2014. Most importantly, what is clear is that this money was not necessarily needed to shore up the RBA but that it was used to score political points by the Treasurer made at the expense of families or communities. You only have to scroll through the cuts contained in MYEFO and this becomes painfully clear. I commend the report to the House, but flag the opposition's concern about the excessively generous and ill-considered decision of the Treasurer to replenish the Reserve Bank Reserve Fund in the way that he determined.

Mrs Bronwyn Bishop (Speaker) Share this | Link to this | Hansard source

Does the member for Higgins wish to move a motion in connection with the report to enable it to be debated on future occasion?

Kelly O'Dwyer (Higgins, Liberal Party) Share this | Link to this | Hansard source

I move:

That the House take note of the report.

Mrs Bronwyn Bishop (Speaker) 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. Does the honourable member for Higgins wish to move a motion to refer the matter to the Federation Chamber?