Chris Evans (WA, Australian Labor Party, Leader of the Government in the Senate) Share this | Hansard source

I thank Senator Bishop for his question and acknowledge his long interest in economic matters. While we face economic challenges, the government is optimistic about the future of the Australian economy. Unemployment is low and we are enjoying our 17th year of growth. The RBA’s latest quarterly statement does, however, highlight that inflationary pressures are the main risk to the domestic economy. It is public enemy No. 1.

I encourage all senators to look at the RBA report. Its statement revises the inflation forecast upwards. Underlying inflation is forecast to remain above the target band until the end of 2009. While the Australian economy is fundamentally in good shape, we are well aware that it faces two conflicting currents: increasing uncertainty about the global outlook and the challenge of domestic inflation.

The severe downturn in the US housing market and the associated financial market volatility pose significant challenges for global growth and the Australian economy. Recent movements in Australian financial markets show that we are not immune to turbulence in the United States. The RBA noted that the likely period of weak growth in the US economy will be accompanied by slowing in other major developed economies.

We are confident that Australia can withstand the fallout from international volatility arising principally from the fallout of the US subprime crisis, although we are not immune. However, all the advice the government is receiving is that Australia is well placed to withstand that. The growth of the Asian economies, combined with the fast growth of the emerging economies, is compensating for the fallout in other areas. Strong demand for our resources is expected to remain high and to sustain commodity prices.

But the complacency of the opposition while in government to building our capacity has left the economy ill equipped to deal with this inflationary problem. In fact, the Reserve Bank repeatedly warned the Howard-Costello government of the need to address skill shortages. Time and time again the Reserve Bank warned the then government about the skill shortages, the lack of capacity and the infrastructure constraints in our economy. What did they do about it? Nothing. They spent like drunken sailors. They ignored the warnings of the RBA—