Sarah Henderson (Corangamite, Liberal Party) Share this | Link to this | Hansard source

On behalf of the Economics Committee I present the committee's report entitled Review of the Reserve Bank of Australia annual report 2017 (first report) together with the minutes of the proceedings.

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

by leave—On 6 February 2018, the Reserve Bank of Australia left official interest rates unchanged at 1.5 per cent. In making this decision, the governor commented that accommodative monetary policy was continuing to support growth in the Australian economy and the board did not see the need to adjust the cash rate at this time.

At the public hearing on 16 February 2018, the governor noted that many advanced economies are experiencing a synchronised pick-up in growth. Reflecting this broader trend, the RBA forecast Australia's GDP growth to further strengthen from 2¾ per cent in mid-2018 to a little over three per cent over 2018 and 2019. Inflation has been slow to increase, and underlying inflation is expected to rise gradually to around 2¼ per cent by 2020.

As the RBA reiterated, Australia's labour market has been especially strong, with over 400,000 new jobs being created in 2017, three-quarters of which were full time. Labour force participation is close to its record high. Australia has experienced 16 consecutive months of employment growth, which is the first time that has happened in the history of the Labour Force Survey. The RBA expects continued growth in employment to further reduce spare capacity in labour markets and generate a gradual increase in wages and inflation.

Australia is transitioning successfully out of the mining boom, and there is a large pipeline of infrastructure investment currently underway. These projects are creating new jobs now while building Australia's productive capacity for the future. Internationally there is increasing competition between countries to attract foreign investment. One way other countries such as the United States are seeking a competitive advantage is by reducing their corporate tax rates. While there are a number of other factors that make Australia a desirable place to invest, including our diverse, skilled and growing population, natural resources and financial stability, our corporate tax rates are high by international standards. Certainly Governor Philip Lowe welcomed the fact that our budget, which included the government's fully-funded proposed company tax cuts, is on track to deliver a surplus by 2020-21.

The RBA noted that a source of uncertainty in its forecasts is the strength of consumer spending, because many households are experiencing slow growth in their incomes and have high levels of household debt. The governor said that measures by the Australian Prudential Regulation Authority to reinforce sound lending practices have contained the build-up of risk in this area, particularly in relation to interest-only loans. In relation to the major banks' decision to increase interest rates on existing interest-only loans, the committee reiterates its view from the third report of its review of the four major banks: banks should not be using macroprudential regulation, which is designed to reduce risks in the financial system, as a cover for profiteering.

On behalf of the committee, I thank the Governor of the Reserve Bank, Dr Philip Lowe, and other representatives of the RBA for appearing at the hearing on 16 February 2018. The next hearing will be on 17 August 2018 in Canberra. I commend the report to the House.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Link to this | Hansard source

by leave—I join with the chair of the Standing Committee on Economics in thanking representatives of the Reserve Bank for once again meeting with us as part of the regular, biannual meetings of the economics committee with the Reserve Bank. I think the Governor of the Reserve Bank, in his evidence to the committee on that day, perfectly summed up the changing conditions around, and the better outlook for, the Australian economy when he said that the world economy was experiencing 'a synchronised upswing'. Australia has no doubt benefitted from that stronger global growth, particularly around the United States and China. I think that the good work of the Obama administration, in turning around the United States economy, is now beginning to bear fruit, particularly in their employment figures. The governor also pointed out that China is beginning to address some of the risks to their financial system and has a stable outlook for growth into the future.

These favourable conditions are really benefitting Australia, particularly in terms of our trading prospects. Commodity prices, particularly around iron ore and coal, have been increasing in recent years, and that's had a favourable outcome on Australia's terms of trade. That has begun to flow into revenue associated with the budget. Through those trade figures, we are now beginning to see that that revenue is increasing. And we have the situation where companies that have been carrying forward past losses—as they're entitled to do under Australian taxation laws—that occurred in the wake of the global financial crisis and the early years of the Abbott government are now beginning to pay tax again because that period of being able to carry forward those losses has ended. So some of those companies are now starting to pay tax.

According to the Reserve Bank, thanks to some favourable international conditions, we are seeing stronger growth and better outlook prospects for the Australian economy. But it was pointed out—and it's important to note this—that many Australians are still struggling, particularly families, pensioners and workers. The governor was right to point out that income and wealth inequality in Australia is actually increasing at the moment. Household debt levels are still at alarming rates and are very high by international comparisons. Of course, a lot of that is to do with static wages, with wages growth stubbornly around two per cent of the wage price index in terms of a growth figure. There were the remarks of the Reserve Bank governor, and the recent monetary policy statement, which said that wages remain subdued, is an understatement. With many workers in the hospitality industry having their penalty rates cut, subdued wages, many enterprise agreements coming to the end of their terms and—the Reserve Bank governor pointed this out—not being replaced by agreements that have the same or higher wage increases but wage increases that are actually lower than the existing terms in an enterprise agreement, we can foresee that this subdued wage growth is going to continue for some time into the future. That's an alarming factor for many households throughout the country. Wages have been around that two per cent figure for at least the last four years now. Every year, the government has been saying, 'Wages are going to start increasing over the next six months.' It's reflected in many of the updates to the budget that we get through MYEFO and also the annual budget figures. We've managed to tease out of the Reserve Bank representatives that the growth figures for wages in the budget and MYEFO over the last couple of years have been overly optimistic and haven't met the forecast rates.

There was a good discussion about housing and the changes that APRA has made to macroprudential measures and the fact that that has had an impact on competition, but some of the representatives of the Reserve Bank are of the view that the housing market is cooling in Australia on the back of increasing supply and the effect of those macroprudential measures. Unfortunately, it's not something that I can agree with because, in the community that I represent, we're not seeing a cooling in the housing market at all. I asked my office to dig up some statistics about house price growth from four typical suburbs in the area that I represent, and they indicate quite an alarming increase in house prices over the course of the last 12 months. We're only talking about the last 12 months here. In Chifley there was an annual average house growth of 13.5 per cent; in Matraville there was an annual growth of 16 per cent over the last 12 months; in Randwick there was an increase of 12.1 per cent in the last 12 months; and in Coogee there was a whopping 12.2 per cent increase in house price growth. You're talking about median rents in Coogee of $1,370 per week. These are some of the factors that are contributing to massive pressure on households when it comes to the cost of housing.

If this government were fair dinkum about listening to the pleas from many Australians—and not a week goes by when I'm not approached by someone in the community that I represent who is alarmed about house prices—they would hear that parents and grandparents are concerned about how their kids are ever going to be able to afford to live in the communities that they've grown up in and where their family and friendship networks are. If the government are going to be fair dinkum about tackling this issue, they need to look at reforming negative gearing and capital gains tax. The largest tax concessions in the world that exist around housing for investors are in Australia, and they are fuelling much of that house price growth that we've seen in many capital cities over recent years, making it unaffordable and putting a big burden on households with cost-of-living pressures and trying to make ends meet. Labor are proposing, if we're elected at the next election, to be fair dinkum about this issue—to tackle this issue and reform negative gearing and capital gains tax discounts.

The final point I want to mention is the corporate tax cuts, and the chair mentioned this earlier in her statement about competitiveness. I thought it was very interesting that the Reserve Bank governor, when he met with us, made the point that tax cuts should not come on the back of increases to budget deficits. That's exactly what's occurring in the United States at the moment, with their budget deficit forecast to increase to five per cent of GDP. That's close to $1 trillion. The remarks of the Reserve Bank governor squarely pointed the finger at this reform as one of the means for increasing that deficit when he said that the deficit in the United States is 'largely on the back of the tax cuts'. That's the view of the Reserve Bank governor—that in the United States they are reducing company taxes, but they're going to push up their budget deficit to an unsustainable level, and Australia shouldn't be entering into a competition with the United States based on this if it's going to lead to similar outcomes in Australia. And, of course, it shouldn't come on the back of taking money out of investing in education—universities, TAFE colleges and schools—and investing in hospitals and maintaining Medicare, but that's exactly what this government is proposing when it talks about cuts to the Gonski model for needs based funding in schools, cuts to universities and the fact that it's decimated funding for TAFE and when it won't tackle things like negative gearing and capital gains tax. All of these are contributing to the increasing cost of living and pressure for households, and that's why it's important that we, as representatives of the community, are listening to those concerns and taking on the advice and evidence of people like the Reserve Bank governor. In that vein, I commend the report to the House.

Rob Mitchell (McEwen, Australian Labor Party) Share this | Link to this | Hansard source

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

Sarah Henderson (Corangamite, Liberal Party) Share this | Link to this | Hansard source

I move:

That the House take note of the report.

Rob Mitchell (McEwen, Australian Labor Party) Share this | Link to this | Hansard source

In accordance with standing order 39, the debate is adjourned. The resumption of the debate will be made an order of the next day of sitting.