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 (third report), together with the minutes of proceedings and evidence received by the committee.

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

by leave—I am pleased to present the third report for the Economics Committee's review of the Reserve Bank of Australia Annual Report 2013. This report follows a hearing with the governor and other officials of the Reserve Bank on 20 August 2014 in Brisbane.

The RBA has recently forecast Australia's trading partner growth to be a little above its long-run average, assisted by strong export trade to China. It is encouraging also that the expectations have risen for improved growth in the advanced economies.

At the August hearing, the Reserve Bank governor estimated Australian growth at two to three per cent of GDP over the year ahead. He commented that our near-term growth may be slightly below recent trends but could increase above trend in the future.

The RBA continues to hold the official cash rate at 2½ per cent, which it has maintained since August 2013. This decision is due in part to a continuation of favourable financial conditions and also to adequate capital inflows to market economies. The governor commented that lowering cash rates was unlikely to encourage growth in the current environment but could be considered in the right circumstances.

There is currently very low volatility in financial prices. The governor has also stated previously that markets are not anticipating global interest rate rises or other adverse events in the period ahead.

The exchange rate continues to remain high by historical standards. The governor noted at the hearing that Australia has undergone a positive rerating by global capital markets over the past five to ten years. This has contributed significantly to the high Australian dollar.

The unemployment rate has increased slightly in recent months. Reversing this trend is likely to take some time despite improvements in labour market indicators. The labour market is responding to these conditions with slower growth in wages and there are indications of a lower unemployment rate into the future which is to be welcomed.

The committee sought the governor's views on the circumstances in which interventions to address rapid price increases in Australian housing, particularly in the major capitals, could be warranted. He noted that in addition to leverage and lending standards, macroprudential tools could be considered if the economic or financial risk of these price rises became sufficient.

The committee gauged the views of the RBA on credit issues facing small businesses. The governor commented that this warrants further discussion as it is an acknowledged problem for smaller enterprises with no obvious or magic-bullet solution. The governor further noted that small businesses employ the bulk of the Australian workforce and will continue to enhance employment and economic activity as long as the opportunities and incentives remain in place for risk-takers and entrepreneurs.

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 20 August 2014. I would also like to thank the secretariat and committee members for their work on this report.

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 also wanted to echo the remarks of the chair, who extended thanks to the colleagues and to the secretariat as usual. I sometimes remark that questioning the RBA at these hearings is like quizzing the Sphinx: you don't really get much out of them and you're left to sustain yourself on a few grains of sand! But there were a few things that emerged out of that last hearing and also a pattern that is emerging across hearings.

I go to what has been observed at these hearings. Back in March the RBA noted two things. First, growth in wages is at its lowest level since records began within the RBA in 1997. Second, the governor observed at our March hearing that the gap between costs and price is widening because profit margins have gone up. Some other observations have made along the way about the weakness of consumption and high level of savings. Fast forward to this hearing, and we have had the governor provide a long list of reasons why now is the time for business to invest and not to be so narrowly intent on sustaining dividend flows and returning capital to shareholders. This call to invest was done because the RBA through bank liaisons observed an unwillingness of business to dedicate itself to investment until business detects sustained demand. This has prompted the RBA to observe an absence of what it called 'animal spirit' or confidence to add to the stock of physical assets. It is clear the RBA is concerned because, as they noted, the level of gross investment within some sectors right now is barely above depreciation rates for capital.

Let's draw those threads together: lowest level of wage growth, consumption barely growing and savings levels at solid highs. On the other hand there are profit margins lifting, investment hardly growing and dividends and returns to shareholders picking up pace. Some of this is not new; we can dig up stats comparing wages versus profit share of GDP and see that wages really have not been the winner in that contest for some time. But it is clear there are concerns that people's costs of living are not really being matched by growth in wages, and that is causing considerable discomfort in the broader community, which makes it the worst time to slice support for families or other groups through what we have seen in the budget.

It is hardly any wonder that consumer and business confidence is taking a hit and it is hardly surprising that business will not invest due to lack of sustained demand. Those linkages are not hard to draw. The test for government is to engender confidence in the broader community to ensure business can start to detect the type of demand it believes the RBA has detected will trigger investment decisions.

Another comment made by the RBA at its hearing, principally through Deputy Governor of the RBA Dr Philip Lowe, attracted quite a bit of interest, specifically where he said:

If we are going to sustain ourselves there, people need to be able to take risk … and we need to innovate to find new ways of doing things better. I think it is about somehow enlivening the entrepreneurial, risk-taking and innovation culture so that we can be the type of country that has high value-added, high wages and high productivity

This is not a new message from the RBA. It has been nudging business for some time on this front. In fact, earlier in the year its CIO, Sarv Girn, was highlighting the need for business to be prepared for and accommodate disruptive technology.

Both the Leader of the Opposition and the shadow Treasurer have highlighted that a challenge for our economy is to harness innovation to drive future growth, and we have been particularly mindful of finding ways to—paraphrasing Dr Lowe—enliven entrepreneurialism. Technology start-ups within our nation best embody that attribute of enlivened entrepreneurialism, and we do need to promote a stronger, more conducive investment environment.

While the government's recent innovation statement finally addressed reform of the employee share ownerships program, a process commenced under the former government, it has walked with leaden feet in other areas that can help these start-ups. Notably, it has failed to meaningfully respond to calls for the reform of the regulatory environment around crowdsourced equity funding, which will provide access to valuable, much needed capital for start-ups. While numerous ministers have suggested they are big fans of this platform, we have hardly seen a response to the Corporations and Markets Advisory Committee report proposing a new way ahead for this funding platform. It is a comprehensive, well-researched report probably taking a conservative approach to future regulation for CSEF. I also wonder whether having Treasury manage that response will slap a further layer of conservatism to the CSEF regulatory framework, but in due course you would hope to see a formal response from the government.

For now, I am very mindful that the sector is demanding from the government a formal statement on where it is at in developing the framework, because people are seeing colleagues leave Australia, heading to New Zealand because there is a more accommodating regulatory environment there. Again, if we want that enlivened entrepreneurialism that the RBA has called for, we need to put a framework in place to encourage it. It is now up to the government to get its act together to deliver that for them. I commend the report to the House.

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

I move:

That the House take note of the report.

Christian Porter (Pearce, Liberal 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.