Helen Coonan (NSW, Liberal Party, Shadow Minister for Human Services) Share this | Hansard source

by leave—I move:

That the Senate take note of the document.

My colleague the shadow Treasurer, the Hon. Malcolm Turnbull, has replied in some detail in the House of Representatives and I will draw briefly on his speech for my remarks. Firstly, I should say that the opposition welcomes the statement by the Treasurer on the crisis in international credit markets. There has, of course, been some considerable concern and we do welcome the statement.

However, we do wish to take this opportunity, because the Treasurer has recapitulated his economic policy, to say where the opposition differ in important respects. Firstly, we recognise, as indeed we all do in this chamber and elsewhere, the importance of ensuring that inflation remains within moderate levels, by which we mean between two and three per cent on average over the cycle. The fact is that, despite the very considerable positive shock to our economy from the improvement in our terms of trade, we have over recent years—and you can take that as being either the entire 47 quarters of the Howard government or the last two years—been able to contain inflation within the target band, and that is so whether you are measuring inflation as the headline CPI or as the RBA’s preferred measure of underlying inflation.

The RBA governor, Glenn Stevens, last week compared the nature of inflationary pressures in today’s economy with those of the early 1950s or mid-1970s. He said:

The reason we are doing better this time around is not hard to fathom ... As work in the Treasury has argued persuasively, a flexible exchange rate, a reformed and flexible industrial environment, better private-sector management and much stronger fiscal and monetary policy frameworks have made a lot of difference. The fruits of those decades of effort of reform are an economy that, for all its strains, is doing well under the circumstances. The officers of the Treasury, past and present, have played a key role in achieving that. That legacy has been handed to you, and to all of us. Our challenge is to keep those improved structures in place and to develop them further, in the period in which we have the privilege of having some influence.

In economics, as the shadow Treasurer and others have pointed out, confidence and expectations are crucial to the performance of the economy. As Alan Greenspan said on 12 February 1998 in testimony to the US congress:

The state of confidence so necessary to the functioning of any economy has been torn asunder. Vicious cycles of ever rising and reinforcing fears have become contagious. Some exchange rates have fallen to levels that are understandable only in the context of a veritable collapse of confidence in the functioning of an economy.

…            …            …

Once the web of confidence, which supports the financial system, is breached, it is difficult to restore quickly.

That is why prime ministers and treasurers successively have consistently used moderate language when speaking about the economy, for confidence can turn very quickly, as I think we have seen and as recent consumer and business confidence surveys show. We have now seen three surveys of confidence, with business confidence falling dramatically in the National Australia Bank business survey for January 2008 and record falls in consumer sentiment in the Westpac Melbourne Institute survey, showing confidence at its lowest level since 1993, and a record fall in the Sensis survey.

In the space of 106 days of the Rudd government, business and consumer confidence have tumbled. Yet, for 11½ years under the coalition government, these indicators held fast despite many ructions and shocks on the international political and economic stage.

This economy is enjoying its 17th year of continuous economic expansion, the longest since Federation. It has been described by the Economist as ‘the wonder down under’. It has unemployment at 35-year lows—that is, now four per cent—while the participation rate is at record highs. This economy has enjoyed average growth over those 11½ years of 3.6 per cent a year, higher than most other developed economies, including the United States and Europe. This economy was 50 per cent larger in real terms when the coalition left government compared with when it commenced government. Real wages grew 21.5 per cent over those 11½ years, when they had fallen 1.8 per cent under the Hawke and Keating governments. This is an economy that has no net debt and has run consistent strong fiscal surpluses; an economy which was strong enough to provide tax cuts each year since 2003 while providing bonuses to carers; an economy where the government was praised in September last year for its exemplary macroeconomic management; and an economy where every year Australian taxpayers are saving over $9 billion in debt interest, allowing greater investment in health, education, roads, the environment and defence.

That was the state of the economy handed to the Rudd government on 3 December 2007 and here we are now 106 days into the Rudd government’s term and business and consumer confidence has been trashed. It does not have to be this way. The economy, as evidenced by the remarkable unemployment figures and the recent national accounts, is strong. The economy is flexible and it is resilient. But the point I want to make is that it is confidence that underpins it all.

Disappointingly, the Treasurer has chosen to misrepresent the economic history of the last decade. He is a Treasurer who continues to try to trash the reputation of the previous government without consideration of the consequences to the Australian economy and the Australian people. He is a Treasurer who repeats ad nauseam gross misrepresentation of the RBA with the so-called 20 warnings; he is one who, unfortunately, talks up inflation with irresponsible comments such as ‘The inflation genie is out of the bottle,’ and pushes the Reserve Bank to increase interest rates. He is a Treasurer who cannot help but talk of chronic crises whenever he opens his mouth and one who continues to exaggerate inflationary pressures, unfortunately to score political points.

It does affect the economy, because the Treasurer speaks with the authority and advice of Treasury. It is a lesson of good economic government that great leaders in history have known how to inspire and build confidence and to build credibility. Sadly, it appears the Treasurer has not yet learned his lesson. Of course, we also have a Prime Minister who claims that inflation is the No. 1 short-term problem, yet proposes to absent himself for almost three weeks overseas in the middle of the budget process.

What is disturbing about the reckless comments of the Treasurer and the PM on inflation is that the RBA have now issued warnings about inflationary expectations. The Reserve Bank today released the minutes on monetary policy, which contain two separate warnings. They said:

A concern was that higher inflationary expectations might influence future wage outcomes.

They also noted:

Members were mindful as well of the risk that further increases in inflationary expectations could influence ... wage and price outcomes, which could complicate the task of reducing inflation. Hence, the question remained whether the current stance of monetary policy was sufficiently restrictive to bring inflation back towards 2–3 per cent over a reasonable period.

These minutes today highlight that the Treasurer’s immoderate language has made this task even harder and, of course, the Treasurer should be the last person fuelling inflationary expectations. The Treasurer likes to talk endlessly about Reserve Bank warnings, yet does not seem to have considered the effect of his own comments. The warnings about fuelling inflationary expectations keep mounting. Two more warnings were released just today. When will the Treasurer start heeding these warnings?

Question agreed to.