Andrew Murray (WA, Australian Democrats) Share this | Hansard source

The issue before us is not an immediate, today’s issue—it is a culmination of a long-term effect, which is the effect of underlying inflation and demand on the economy and, consequently, the determination of the Reserve Bank to apply a monetary policy ‘brake’—and I note that that was the word used by Senator Minchin in replying to a question today.

Inflation, of course, has many causes. One of them is a shift in import prices. Import prices, the cost of capital and the flow of capital are indeed affected by interest rates and whether they have a premium over foreign interest rates. But probably the greatest effect for import prices in recent times has been the exogenous effect of a rise in oil prices, and we recognise that. And there is very little either this government or any government can do about that. So we really have to look at the endogenous area—the domestic area, domestic policy. If you look at the issue of business costs, businesses’ costs rise when events occur which force them to increase their prices, and of course that has an inflationary effect. It is a direct consequence of the government’s obsession with markets and with a backing-off of intervention that, to some extent, we have inflationary effects on business costs.

The first and most obvious example is a failure to recognise that reducing the percentage of GDP spent on education and training would result in fewer skills being available. The consequence of fewer skills being available is that businesses have to pay more to make sure that they get those skills. If they pay more, they then have to raise their prices. So government had a very conservative view and a very economic rationalist view, which I think they are backing off from now, which said: ‘Let the market control these matters. The market will supply the skills and the people that are required.’ If anyone thinks we do not have the raw numbers available, one in 20 Australians are unemployed and one in seven are underemployed. If they had been properly trained and educated and if other things had been done, we probably would not have that price effect.

Another effect has been recognised by the government, and that is regulatory overlap—the consequence of a failure to invest in infrastructure or in resolving the various regulators that govern the economy. The government has now recognised this, but the delay in attending to that has meant that bottlenecks have occurred. When bottlenecks occur, costs rise for businesses and they pass them on in prices. So there are underlying effects on inflation from that area.

In the area of consumer demand, the failure of the government to follow the lead of advanced Western economies and restrict and restrain negative gearing has contributed to asset inflation. Essentially, over a million households are engaged in negative gearing. They record something like $10-odd billion of tax losses on their negative gearing. They have freed up the equity in their homes, or they have borrowed, in order to acquire assets to lay them off for a tax purpose now, with the intention of gaining a capital gain later. The consequence of that is excessive demand in the economy, excessive confidence. And eventually the market will work and people will get burnt and hurt, and, to some extent, this interest rate is a consequence of that.

I recognise that government ministers have slogged their guts out, working very hard at things they think important. But I think they have not paid enough attention to the future, and by not paying enough attention to infrastructure, to skills and to the issues of negative gearing and restraining asset inflation they have contributed to an inflationary situation. Unfortunately I only have five minutes—otherwise I would give you much more of the same, but I hope you have got the message.