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

I rise to speak in relation to the latest report by the House of Representatives Economics Committee, its Review of the Reserve Bank of Australia Annual Report 2014. I wish to thank the new chair, the member for Bennelong, and the committee secretariat. I note the presence today of a number of my colleagues on the committee, notably the member for Charlton and the member for Page, who, I understand, will be speaking to the report.

The backdrop to the report was the significant move by the RBA away from a position that it had stated for some time—in fact, since about August 2013—that it would apply a period of stability to interest rates. It decided in February, all of a sudden, that it would move away from that period of stability and move to lower interest rates, which obviously raised eyebrows across the community for a host of reasons. When you look at the economic factors that are in play, you would believe that those economic factors, in any other given period of time, would be enormously beneficial to an economy. Chiefly, when you look at the drop in oil prices which flowed through to fuel prices, and the CPI flow-through effect of that, you would think that there would be benefits straight away in that avenue, particularly in terms of potentially building consumer confidence and possibly leading to people spending a bit more in the economy and recognising the beneficial impact of that.

You would also look at something that, from an economic perspective, has been of great concern to us for some time. That is the strength of the Australian dollar. In fact, the RBA noted that since the last time it issued its statement the Australian dollar had fallen something like nine per cent relative to the US dollar and about seven per cent in the trade weighted index against other currencies. You would imagine that that would be a fairly significant event in itself. Off the top of my head, the Australian dollar is trading at about 76c, give or take, which is down from the highs well above $1 some time ago.

You would think those two factors would be enough. But what was surprising—and the report carries this quote—was when the governor stated:

When we reviewed our forecasts in late January, we did not feel that growth thus far had been weaker than we had expected three or six months ago, but, when we looked forward, as hard as that is to do, we felt that there were fewer signs of a further pick-up in non-mining activity than we had hoped to see by now.

This is a fairly significant warning about the health of the Australian economy. What they are saying is they are not just looking at the short term; they are looking down the track as to where they think the economy is headed and they have made this call to reduce interest rates. The RBA governor has previously said words to the effect of, 'You should not see monetary policy as a silver bullet.' But at the same time, too, the Reserve Bank recognised there were very few other levers to be able to pull to try to lift growth in the economy.

How is the government receiving this type of news? The government has been working flat out. I am surprised to hear senior ministerial figures in this government try to tout a number of things as signs of great movement in the economy. Just the other week, I was listening to some of the stats that were being put forward. The coalition was spruiking economic growth as rising. That just flies in the face of what the RBA is saying—that growth in the economy will remain below trend for some time. You hear the coalition spruik the growth in job ads, yet unemployment is higher now than what it was during the GFC. The RBA is actually concerned, as outlined in this report, about where unemployment will peak and the fact that the economy is not growing at a rate high enough to see unemployment decline.

The government talk about housing stats. In actual fact, one of the concerns that exists and is touched on in this report is the growth in investor lending, which I want to come to later, and the fact that that growth is patchy. Other than in Sydney, growth in housing markets is roughly at five per cent. We have put a lot of store in the notion that in the non-mining sector dwelling activity should be stronger, but it is patchy, at best. We have strong growth in Sydney and Melbourne, but that is not necessarily being replicated elsewhere.

The coalition talks about infrastructure spending, yet the RBA continues to point to the fact that, if you are serious about tackling housing affordability, you have to make sure supply is connected up with infrastructure, particularly transport infrastructure. This government is making calls on infrastructure that defy the normal, usual process that people can support, which is to have infrastructure decisions—say, for example, from Infrastructure Australia—made independently, made with some rigour and a clear cost-benefit analysis. That is not happening. What we are seeing in infrastructure spend is basically a coalition federal government working in lockstep with coalition state governments because it suits political priorities rather than the needed infrastructure priorities that are out there, the types of infrastructure priorities that the RBA keeps signalling are important if you want cities to work better, if you want to see productivity, if you want to respond better and if you want to deal with the type of concerns that exist about house prices. People will move to areas where they know there is good infrastructure. The strength of that demand will drive up housing prices. They are just making it harder in terms of the way the economy and cities work.

The other element that surprises me about the way the government is going is that they seem to be claiming credit for all these other stats. They cannot even get their budget through the parliament, yet they believe that they have been the main driver behind the economy in the stats that they quote.

The report also made reference to the work of APRA in developing a suite of macroprudential tools to address the serious growth in investor lending in the residential real estate market. We have had APRA before us a number of times and, besides this report, APRA appeared before the committee last week, giving a bit more insight into its thinking about what it will do on macroprudential tools. I have expressed support previously for Chairman Byres. I am particularly impressed by his approach and I know that the financial sector is as well. But I am not entirely sold on an approach that he outlined on dealing with investor lending via macroprudential tools where APRA is, understandably, looking at increased capital requirements on banks, because they are losing patience with the bank's response to the growth in investor lending. You can understand why they would want to do it: it gives them more bang for their buck. But they are talking about increasing capital requirements at a time when we are looking at increasing capital requirements through the work of Basel III and when we are also looking at the FSI recommendation on cap requirements. So you can certainly understand why they are going down that path, but the issue I am concerned about is transparency.

APRA are flagging that, when it applies this macroprudential tool of increased capital requirements on banks, they believe that this will be done behind closed doors. A number of us, regardless of your politics, expressed mild surprise—that is how I would put it—on Friday when we were told that this would happen in this way. We certainly believed that, on a public policy issue as big as the growth of investor lending in residential real estate, this stuff would be done in the open.

APRA are saying they will not require banks to report, that this would not be a reportable matter to the share market and that this would be done behind closed doors. It flies in the face of the spirit of banking deregulation that has been unveiled in this country over decades, which was to take away the back-room approach, the cosy approach, to the way that mortgage lending was extended and decisions were made. It opens it up and we are getting rid of those cosy arrangements. But for APRA to now say this would actually be done with individual banks—which I support; you need to do it with individual banks—and done behind closed doors, I think, raises concerns about transparency.

Investor-lending growth is a big deal. It grew double the rate of owner-occupier lending in 2014, at about 11 per cent. I am yet to be convinced that applying a regulatory tool of this magnitude in private, not being open to the market and lenders about it, and requiring us to get post-event details through committees or the tabling of reports is an approach that should be adopted. We will be testing APRA on this. I think that APRA will need to consider a variety of elements in the application of this macroprudential tool, if it is applied. I look forward to hearing further about the development of their thinking. Obviously, they have not detailed exactly how they are going to go on this front at this stage. But, when they do, I think they will need to provide more information to the public about how they intend to proceed.

Kevin Hogan (Page, National Party) Share this | Link to this | Hansard source

I also acknowledge our new chair of the House of Representatives Standing Committee on Economics, the member for Bennelong. He is doing a great job. I also acknowledge our previous chair, the member for Higgins, for the wonderful job she did before being promoted. I also acknowledge my fellow committee members, the members for Charlton and Chifley, and the member for Chifley's comments.

I will pick up some of the points that were raised, but I want to look at the report first. This is an overview. Two points were made in the chair's remarks. The first point was that productivity growth has begun to improve in this country, which is fantastic and very necessary. The second point was that public sector debt needs to be kept low, due to the fact that if something goes wrong the government needs to be able to expand fiscal policy, much like it did in 2009. You need to have the scope to do that.

The member for Chifley mentioned that some things have happened, sometimes outside the control of the government, that have been good in the last 12 months or so and some things that have been unfortunate. We have had falling petrol prices, which is obviously wonderful for our economy and the normal household budget, and, as mentioned, interest rates have been lowered just recently. That is obviously good for mortgage holders. The dollar, from memory, peaked at about $1.10 and is now down to 75c or 76c so that is a 35 per cent fall in the currency over the previous 12 months or so. So for our exporters that is absolutely fantastic and it is going to give some positives to different sectors of the economy, and it has not had an inflationary impact, either, which has been quite fortunate.

But we know, and the Reserve Bank report says, as to growth in the mining sector, that the mining sector has now gone from the developmental phase to the production phase. When you are developing a mine there is a lot of activity; there is a lot of employment created in getting a mine set up and going. Once you move into the production phase, which is where we are in the cycle, there are not as many direct jobs necessary in running it as there were in getting it set up. But obviously income begins to flow to the companies involved in that.

This country has been most fortunate over the last 10 to 15 years in that the growth in the mining sector and the terms of trade that this country has had for such a prolonged period have never been seen before. So we have been in a most fortunate window in the last 10 or so years in terms of this country's finances and the money that has been flowing to it.

We are now entering a new phase. For example, we have seen the price of iron ore fall from over $100 a tonne to around $50 a tonne now. That has had dramatic effects on the country's finances. We do need to see growth, and we are doing what we can as a government to encourage growth, in the non-mining sector. In fact, while much was made just then of the unemployment rate, jobs growth right now is higher than it was two years ago. So, while the unemployment rate has edged up slightly, it would have edged up even more if we had not done what we have done to encourage jobs growth to be higher, and that is happening.

Another thing that will hopefully help this growth in the non-mining sector is this. We can never overestimate the importance of what we have done with the free trade agreements. In our trading accounts, we now need to see an uptick in things like agriculture and the services sector to offset the fall that we have seen in the mining sector. Indeed, the agriculture sector—speaking from personal experience within my own electorate—has seen some great success stories that will be helped and will continue because of the free trade agreements, including fresh milk sales to China from a cooperative in my electorate, and also a meat cooperative that is now exporting a lot of boxed, chilled and frozen beef to China, which was not even on their sales sheet to any extent a few years ago. So that is very positive.

There are lots of other examples as well, including some in manufacturing. I have a high-end, expensive manufacturing plant for high-end caravans, Acting Deputy Speaker. You would like them, and I am sure you would be very impressed if you saw one. They are exporting now to China, and that has also been helped by the free trade agreements. So we need to encourage growth in the non-mining sector, with the terms of trade that we are seeing change.

Infrastructure spending, which was also mentioned by the member for Chifley, plays an important part. We went to the election wanting to be an infrastructure government, and we are continuing that. The processes and the infrastructure projects that we are choosing to run out are important. They are creating real, direct jobs. They are going to improve transport efficiency, business and everything else. There is certainly a large one happening in my electorate, with the dual carriage upgrade of the Pacific Highway which is a very important project in my community.

At any stage in a country's history there are positives. There is sunshine that we can see ahead. But there are always storm clouds ahead as well. Governments and countries can never stand still. The world is a competitive place. We continually have to be a reformist government. We continually have to make sure that our businesses are encouraged to be competitive and helped to be competitive so that we as a government set the ground rules and the goalposts in the way we help every sector. Especially as the mining sector is coming off the boil, it is important that we help every sector in our economy maintain its competitive edge and advantage so that it can thrive. As I have said, we have seen jobs growth improve in the last two years; that has to improve to offset the falling jobs that are available in the mining sector. We have to continue to be a reformist government to make sure that we remain competitive. I thank the governor for his report.

Pat Conroy (Charlton, Australian Labor Party) Share this | Link to this | Hansard source

I congratulate the members for Chifley and Page for their contributions; I applaud the secretariat's work on this report; and I welcome the appointment of the member for Bennelong as our chair after the well-deserved promotion of the previous chair, the member for Higgins.

This is a very important report on the Reserve Bank. The member for Chifley set the scene for our hearings. It is worth going over that one more time. The key environment this annual report is being heard in is at an environment where we have emergency level interest rates. With an official interest rate of 2.25 per cent, we have the lowest interest rate in nearly 50 years. The Reserve Bank has not set the interest rate at that level because they think the economy is going well; they have set the interest rate at that level because they know the economy is in serious trouble.

We had the last speaker, like many government members, cherry-picking individual statistics around monthly employment growth to try and defend the government's appalling record on employment. So, rather than cherry-picking, I am going to look at the six central actual indicators of employment and labour force in the Australian economy.

We start with the headline 'trend unemployment rate'. The trend unemployment rate is at a 12-year high. Not since 2002 have we seen an unemployment rate this high. The youth unemployment rate is very high as well. We have aggregate hours worked in the economy that is sluggish at best, with only a growth of one per cent since the election in 2013. And we have average hours worked actually falling.

We have a labour force underutilisation rate of 15.1 per cent, which is the highest underutilisation rate since 1995 when we were coming out of the 1990s recession. Perhaps worst of all, we have the highest underemployment rate ever recorded: 8.7 per cent. Statistics on underemployment began to be collected in 1978 and they have never exceeded the level we have now of 8.7 per cent. Not even during the depths of the 1980s recession or the 1990s recession have we seen an underemployment rate this high. This all points to a very weak economy with insufficient jobs growth to absorb the labour force increase, and what we are looking at is a jobs crisis. This government is asleep at the wheel of this jobs crisis.

In previous testimony by the Reserve Bank, we heard them repeatedly state their concerns around the need for non-mining capital investment to pick up the slack as the mining boom comes off the boil. Unfortunately, that is not happening. The Reserve Bank in their statements talk about the need for 'animal spirits' to catch on in the economy and grow, so that we see non-mining capital investment pick up. But this is not occurring, so we are seeing a significant gap in capital investment in our economy, which is leading to low jobs growth and increasing unemployment.

We are also seeing stagnant or falling real wages matched by increased productivity in the labour sector. So there can be no doubt that you cannot blame this jobs crisis on our industrial relations system. We have increasing productivity. We have wage rates reflecting a slow economy, so the industrial relations system is working exactly as it should be to provide the necessary flexibility for increased jobs growth, but it is not happening, because we are not getting capital investment and we have a government working against the Reserve Bank's loosening of the economy through their fiscal actions.

As we have said, we have slow growth. We have very low confidence. We see the Treasurer, the member for North Sydney, grabbing hold of any transitory reporting of confidence to try and say that we have increasing levels of confidence in the economy. That is completely untrue. We have confidence levels well below the period we saw in the last government.

Throughout all of this, we have a government that is completely out of touch with the crisis developing. In my region of the Hunter, we have an unemployment rate around 10 per cent. We have a youth unemployment rate exceeding 20 per cent. Let me repeat that: one in five young people in my area who are looking for a job cannot find a job. That is very distressing. If it continues, that will possibly lead to a generation that is incredibly scarred. We have an increase in long-term unemployment, so people who are out of work are finding it much harder to find work. All this points to a jobs crisis that this government is not taking seriously.

It is not just about rhetoric; it is about actions. Their actions demonstrate that they are not taking it seriously. We have seen them destroy the automotive sector by withdrawing $500 million of support. This was a move signalled before the last election, one of the few election promises they actually honoured. The head of Holden made it very clear that, if they withdrew that $500 million of government funding, Holden would leave the country. They left the country and they took Toyota with them. So that is 50,000 direct jobs gone and another 200,000 well and truly imperilled.

We have seen their complete back of regard for the naval shipbuilding and submarine construction industry. We only have to look at the fiasco around the submarine contract to see that. The Prime Minister was only concerned about saving one job, and that was his own, when he made very ill-defined promises to Senator Edwards, from South Australia. In passing, I am proud to acknowledge the very strong announcement from opposition leader Bill Shorten today that our policy is to build the submarines in Adelaide and to open up a proper competitive tender process inviting four foreign submarine builders to bid in a most appropriate way.

We have seen $900 million in cuts to science and research under this government, and we cannot have an innovative economy if we are stripping support out of this area. We have seen a cut from the $500 million precincts program to their $188 million growth centres program, which is essentially the same program designed to improve applied research and the links between industry and research but with $300 million less. We have also seen their abandonment of the Australian Jobs Act, which, through the Australian industry participation plans, meant that Australian companies and workers would have the first go on projects worth over $500 million.

The report by the Reserve Bank is an important report. It signals concern about a slowing economy. It signals concern about a jobs crisis with high unemployment, high underutilisation of the labour force, high underemployment and distressing youth unemployment levels. We have seen the result of this, which is that interest rates are at emergency lows. There is only limited room for manoeuvre for the Reserve Bank, but I fear they may need to do that if this government does not get off its hands and start taking concrete action, because the result of all of this will be a generation of people who cannot find work and all the social and economic turmoil that goes with that. I commend the report to the House, and I thank the House for this time.

Debate adjourned.