David Coleman (Banks, 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 2016 (second report), together with the minutes of proceedings, and I ask leave of the House to make a short statement in connection with the report.

Leave granted.

On 1 August 2017 the RBA decided to leave official interest rates on hold at 1.5 per cent. In making this decision, the governor commented that 'holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time'.

At the public hearing held before the committee on 11 August 2017, the governor noted that the global economy has strengthened and, as a result, the RBA expects domestic economic conditions to improve. The RBA forecasts Australia's GDP growth to rise above two per cent in late 2017, to 2¾ to 3¾ per cent over the year to December 2018. Continued growth is being supported by accommodative monetary policy, an increase in LNG exports, and employment growth.

Underlying inflation is somewhat higher than late last year, and the RBA forecasts that it will reach around two per cent over the second half of 2017, at the bottom end of the RBA's target. Headline inflation is expected to lie between two and three per cent over the year to December 2019, with the consumer price index (CPI) forecast to rise to around two percent by the end of 2017.

Since its low point in January 2016, the Australian dollar has appreciated considerably against the US dollar and on a trade-weighted basis. The governor stated that the current exchange rate will 'contribute to subdued price pressures in the economy'. The governor added that an appreciating exchange rate would be expected to result in slower economic growth and inflation than currently forecast, and the exchange rate is an issue which continues to be of great interest to the RBA and the committee.

Since the beginning of 2017, around 165,000 full-time jobs have been created in Australia, average hours worked have increased, and labour force participation has risen. The RBA expects that the recent strong growth in employment and increased household income will support consumption growth, moderated by high levels of household debt and lower wage growth.

Business investment in Australia is expected to increase gradually as growth in demand increases. The RBA noted that conditions are currently favourable for stronger growth in business investment, including low interest rates and reduced tax rates for small and medium sized businesses.

Overall, Australia's economic growth outlook, according to the Reserve Bank, is positive, with the transition to lower levels of mining investment almost complete—and indeed we've seen the impact of that in recent business investment figures. Increases in the production of LNG are expected to help to contribute to GDP growth in Australia of between two and three per cent for the year to the end of 2017.

On behalf of the committee, I thank the Governor of the Reserve Bank, Dr Lowe, and his colleagues for appearing at the hearing before our committee in Melbourne on 11 August 2017.

I commend the report to the House.

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

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Link to this | Hansard source

by leave—I concur with the member for Banks in thanking the governor and various representatives of the Reserve Bank for once again appearing before the House economics committee. It was a wide-ranging discussion of issues associated with monetary policy, energy policy, income, inequality and banking.

I do wish to make a few comments regarding the situation with the banking sector in Australia and energy policy. These are all contained in the committee's comprehensive report, particularly at page 17 of the report, where we were having a discussion with the Reserve Bank governor regarding the situation in the banking sector in Australia, most notably the allegations against the Commonwealth Bank of Australia that have been levelled by AUSTRAC in respect of breaches of Australia's anti-money-laundering and terrorism financing laws.

The governor made three important points in respect of banking culture in Australia. First he said:

On trust, I think it's fair to say that trust in banking has been strained.

…   …   …

On service: I think it's fair to say that service has taken a back seat to sales.

…   …   …

… I think we can all identify examples where the desire for short-term profit has probably led to not enough attention to risk management issues. So the focus needs to be on rebuilding trust and delivering high-quality service to customers, and a strong focus on risk management. Those are the things that we need to focus on.

From Labor's perspective, we totally agree with the Governor of the Reserve Bank. It's our view and certainly the view of the people of Australia that the best way to do that is to establish a royal commission into the banking industry in Australia to get to the bottom of exactly what's going on in this industry; uncover some of the scandals, the rip-offs and the hurt and financial pain that it's caused for many Australians; and have an independent arbiter look at the issues and put together a set of recommendations that a government could adopt to improve confidence, trust, stability and those issues that the Reserve Bank governor mentioned: trust, service and risk management in the Australian banking industry.

In respect of energy policy, there was a wide-ranging conversation with the Reserve Bank representatives about the parlous state of Australia's energy sector and the fact that energy prices have been increasing for some years and are putting a lot of stress on household budgets. The Reserve Bank governor made the point that it's becoming quite dire. He made the point very well that the major focus, the major factor, that's causing the problems in the energy sector in Australia is the lack of certainty regarding business investment. He said:

There is uncertainty about the policy environment and that is delaying investment. That is not in dispute. The investment uncertainty is not just in electricity generation; it's affecting investment decisions in other parts of the economy, because businesses aren't sure about the future price of electricity, so it's another reason to wait.

…   …   …

The higher prices of electricity are also affecting household budgets, particularly for lower income households, who spend a disproportionately high share of their income on electricity. It's crimping their budgets and having an effect on consumption, and it's going to have an effect on the CPI as well. So investment uncertainty, spending decisions and the CPI are the perspectives that we're looking at this from.

He went on to say:

… providing some certainty about the future structure of the electricity generation industry would be useful for the country, for investment, on prices and on household budgets.

That's not the Labor Party speaking there; that's the Reserve Bank governor of Australia, in many respects the chief economist in this country. That's his view of what is going on in Australia at the moment.

The lack of certainty with respect to energy policy that has been created by the Turnbull government is having a serious effect on business investment, business profitability and household budgets in this country. It is the fact that this Turnbull government argues amongst itself and can't make up its mind on a clean energy target that is having a massive effect on energy reliability, on investment in the industry and, ultimately, on households' budgets. The ball is well and truly in the government's court. It needs to come to a decision on a clean energy target.

Finally, the governor made important points, most notably about inequality:

It's a legitimate issue, people are rightly worried about it, but on many measures we're doing better than some other countries.

The wages share of income in this country has been falling for some decades now. In the last 10 years, the incomes of those in the top 10 per cent of the income brackets have grown by 72 per cent, whereas the incomes in the bottom tenth of Australian household income earners have grown by only 23 per cent. That statistic alone says it all about the state of income inequality in this country. It's a very real issue, and I'm glad the RBA governor pointed this out. I commend the report to the House.