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 second report, entitled Review of the Reserve Bank of Australia annual report 2013, together with the minutes of the proceedings.

Ordered that the report be made a parliamentary paper.

by leave—I am very pleased to be presenting the second report of the economics committee of the 44th Parliament as part of the committee's review of the Reserve Bank of Australia's annual report 2013. This report follows a hearing with the Governor and other officials of the Reserve Bank on 7 March 2014 in Sydney. The RBA noted in its May 2014 Statement on monetary policy that 'overall economic activity picked up over the past six months, with the economy looking like it grew at close to its long-run average pace over this period'. The RBA also commented:

The outlook for Australia's trading partner growth is little changed since the February Statement.

It went on:

… growth of Australia's trading partners in year-average terms is forecast to be around its long-run average in 2014 and 2015.

Currently, RBA forecasts indicate that GDP growth in Australia will be slightly below trend, 2.75 per cent, over 2014 to 2015. This is anticipated to pick up over 2015 to 2016. Although the outlook for inflation appears to be a little higher than six months ago, it remains consistent with the medium-term target. Underlying inflation is forecast at 2.5 to 3.5 per cent to June 2015.

It is clear that the decline in investment by mining companies is set to continue. Other areas of demand, such as non-mining capital expenditure, could partly offset this downturn, but other sources of growth will also be needed. The labour market is likely to remain soft for a while due to the current period of below-trend growth, but it is notable that the indicators in this regard have recently become more positive.

As noted by the RBA in its May 2014 statement, the exchange rate remains a 'significant source of uncertainty' for economic and inflation forecasting. The Australian dollar is currently trading at about 10 per cent below its 2013 peak, but the Governor has reiterated his view that the dollar remains overvalued based on costs and productivity in Australia relative to those of other countries.

Demand for new housing appears to have remained strong, including First Home Owner Grants and loan approvals for new dwellings. The Governor commented that construction of new dwellings will probably rise strongly in the year ahead. As Australia has been undersupplied in recent years in terms of new dwellings, increases in residential construction activity are to be welcomed. In recent years, productivity growth has been somewhat sluggish in Australia. However, the Governor suggested that this is likely to improve with the ramping up of output growth in the resources sector. Other drivers of productivity growth are likely to be needed. The RBA board decided to leave the cash rate unchanged at 2.5 per cent at its most recent meeting on 3 June. The Governor commented in relation to the board's decision that monetary policy was appropriately configured to foster sustainable growth in demand and inflation outcomes and that the most prudent course is likely to be a period of stability in interest rates.

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 before the committee on 7 March 2014. 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

I am pleased to speak to the committee's second report reviewing the Reserve Bank of Australia Annual Report 2013. I extend my thanks to the chair, along with the committee secretariat, and commend them for their assistance and hard work. I note the presence of the member for Rankin, who is on the committee. Back in March, when the committee's first report was tabled, I remarked upon the challenges that still confronted the world economy. Concerns were also expressed about the potential impact of the federal government's decisions on our own domestic economy and, while the recent national account figures are welcome news, it is clear that the mining sector is still relied upon as the main driver for growth. The challenge remains: getting the non-mining sector to contribute more. The task here has certainly not been helped by the release of the Abbott government's first budget, which has dented consumer and business confidence. During our hearing in March, the RBA reflected on the strength of dwelling approvals, which in the three months leading to the hearing lumbered almost 50,000. According to the RBA, this was the highest three-month total in the history of that series. Yet, just over two months later and two weeks after one of the most poorly received federal budgets in recent memory, the value of homes in some of our biggest markets slumped massively—some falling by margins considered the largest since the GFC. This prompted AMP Capital's Chief Economist Shane Oliver to conclude that there was no doubt about the effect of the budget. He said:

In May we saw a sharp almost 7 per cent decline in consumer confidence … If 150,000 people lose their family tax benefits and there's the fear factor for everyone else, no doubt it will have an impact.

Why is this serious? Because many economists underscore the value of housing construction as a platform for growth in the non-mining sector, especially against the backdrop of a continuing downward drift in mining investment, yet the budget has impacted on the purchasing power of low and middle Australia, slashing family payments and other benefits, increasing fuel taxes and, down the track, introducing medical co-payments—all this in an environment where wages growth, according to the testimony of the RBA, remains at its lowest in over a decade. In fact, the RBA stated that wages growth is the lowest it has been since 1997. Added to this are subdued prospects for employment growth, with the RBA noting that it is not until 2015 that there will be sufficient growth for that growth to make inroads into the unemployment rate.

If we are looking to the non-mining sector to help sustain and improve growth, the government's fiscal strategy is shaping up as an obvious threat to this serious task of rebalancing. While in opposition, the coalition regularly stated that our fiscal challenges were not due to a problem with revenue but, rather, that we were confronted with an expenditure problem. Upon securing office and releasing their first budget, the coalition government now sets about lifting taxes or introducing new ones. Surprisingly, it turned its back on around $700 million of revenue from previously announced measures designed in part to address multinational profit shifting. This overall issue has attracted British Prime Minister David Cameron's attention who has urged multilateral effort in addressing profit shifting. Indeed, during the hearings, the RBA's Deputy Governor remarked:

International tax rules have not kept pace with the change in the globalisation of business, and governments, as a result, are getting less tax revenue …

He then stated:

Given the fiscal positions that many governments find themselves in, it is obviously an area that people want to fix.

Unless, of course, you are this government, which rejected nearly three-quarters of a billion dollars in revenue and then was forced to make this up elsewhere. Let's put this in perspective. The $700 million this government walked away from in MYEFO it made up for by cutting $500 million in healthcare investment in MYEFO. It is perverse. Efforts to tackle multinational profit shifting morph into shifting the revenue burden, heaving it onto low- and middle-income Australia.

One final area I want to record some concern about relates to the rise of shadow banking in China. Both the IMF and the RBA are keeping a close watch on this, so it is certainly prudent for this House to note their focus on this issue. During the hearings the RBA Governor expressed his belief that the asset quality in some of the shadow banking entities was likely to be poor. Further, reflecting on some of the loans made within that system he stated:

In fact, it is virtually certain that some of those loans, if they have not gone bad yet, will go bad.

The question, according to Governor Stevens, is how quickly they can get on top of it and get ahead of it. I certainly believe that this is a matter that will need further examination within the scope of the existing work of the committee. I certainly welcome the chair's commitment to do this. I commend the report to the House.

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

The time allotted for statements on this report has expired. Does the honourable member for Higgins wish to move a motion to enable it to be debated at a later date?

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 for the matter to be referred to the Federation Chamber?