Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Hansard source

In a word, no. We do not agree with that, Senator Fielding. I think if you read the full Reserve Bank statement on monetary policy, you will see that its decision on interest rates was very much one that took account of the underlying inflationary pressures that exist not only in this economy but in most of the world’s economies. That is why most central banks have been tightening monetary policy. It is certainly true that the significant rise in the world price of oil—which affects every single country—is going to have some inflationary impact. No doubt, the sorts of dramatic increases in oil prices that have occurred are going to flow through to the prices that we pay.

Fortunately, there is a paradox in that the extraordinary demand for oil in the booming economy of China—and, to a lesser extent, India—has of course had a big impact on the prevailing price of oil. It is taking some time for the oil industry to respond to that significant demand, and that is why you are seeing prices as they are. But for many years China has been exporting deflation to the world because of the dramatic impact it is having on prices for manufactured products. So there are two impacts: from the boom in the Chinese economy and from its capacity to supply the world with very cost-effective manufactured products. On one hand, we suffer; on the other, we benefit.

I note that Senator Fielding is putting forward the proposition that the federal government should simply cut the excise by 10c. I do respect Senator Fielding’s genuine concern for Australian families and we share his concern for the impact on family budgets of the price of petrol. But it is our very strong view that the price of petrol is a function of world oil prices and that, in our response to this phenomenon, we must avoid knee-jerk populist responses. I would not necessarily accuse Senator Fielding of advocating a knee-jerk populist response, but we do regard fiddling with excise at a time like this as a knee-jerk populist response. Indeed, I believe in giving credit where it is due, and I do give credit to Mr Beazley and the opposition for not pursuing that path. I commend them for not falling for the two-card trick of advocating cuts in excise.

I remind Senator Fielding of our record on this matter. We did cut the excise, of course. Back at the time that we introduced the GST, the excise was cut by some 6.7c. Then, in the following year, we ended Labor’s indexation of excise and further cut the excise by 1½c. The fact is that excise is being reduced in real terms every year because of the end of that indexation—as a result of our decision to the end the indexation. The government are obviously having a look at what responsible and sensible measures we can take in response to the pressure on Australian families. We have eliminated as an option a reduction in the excise. You would have to cut the excise by some 10c for it to make any difference. Senator Fielding and the opposition know full well that would be at a cost to revenue of somewhere between $3 billion and $4 billion a year. The measures we have already taken have reduced excise revenue by some $2.3 billion a year. (Time expired)