David Bushby (Tasmania, Liberal Party) Share this | Hansard source

On behalf of Senator Parry, I move:

That the Senate notes that Rudd Labor government’s reckless spending.

These are historic times. Yes, there is no doubt that Australia, under the Rudd Labor government is rapidly heading towards new records—new highs and new lows—but the records we are looking to set are not ones that the Prime Minister and those sitting opposite should be proud of. On the contrary, this Labor government should be ashamed of the direction in which it is taking this nation, the future obligations and risks it is placing squarely, firmly and deliberately on the shoulders of all Australians and the fact that many of the decisions it makes are made far more for political expediency than for reasons of good policy.

Sitting right at the front of the government’s historic achievements in this regard is the new record that it is setting as the biggest spending government of all time. That is right. This government took such great delight in accusing the Howard government of being a big taxing, big spending government. I might add that this occurred because the coalition managed the economy so well; we increased economic activity and created increased tax revenue that we consistently gave back to the taxpayers at every opportunity. But, by any measure, this government has in a short period of just over 12 months taken on the mantle of the biggest spending Australian government of all time and, in the time since, it has continued to grow that record.

When Labor is in government the fact is that it spends up big. In the few short years that the Whitlam government was in power, spending increased to such an extent that the Commonwealth share of GDP went from 19 to 24 per cent. The 13 years of Hawke and Keating saw that figure increase to 26 per cent—a figure that was much reduced under John Howard. The Howard years saw the rolling back of the Commonwealth share of GDP, as Costello fought to balance the budget after Labor left us $96 billion in the red. In 2009, under the Rudd Labor government, all of that work has been undone. At $57.6 billion and almost five per cent of GDP, next year’s budget deficit is forecast to be our biggest since World War II—so much for the conga line of then shadow ministers, including the now Prime Minister and his deputy, who all stood before the voting public before the last election and, with hands on hearts, they swore on their mothers’ graves that they were economic conservatives. They might have had their right hands over their hearts when they did it, but there is no doubt that they had their left hands behind their backs with their fingers tightly crossed. I am reminded of that oh so prescient comment by Peter Garrett: ‘Once we get elected we’ll change it all.’

As I mentioned whilst taking note of Minister Sherry’s hopelessly irrelevant and inadequate answers to questions without notice yesterday, the calls for the government to consider winding back their stimulus spending are mounting. Just yesterday three leading economists, Stephen Kirchner, Chris Richardson and Sinclair Davidson, added to those calls, saying that it was time for the government to rethink its spending binge. The economic outlook is improving, and it is almost certain at this point that Australians on the whole will escape the worst of the economic downturn that has afflicted many others in comparable nations like the UK and the USA. The government’s own Treasury modelling looks to be too pessimistic in terms of the depths to which economic performance will fall and the impact on the employment of Australians. The three economists yesterday commented on this and noted that, in their opinion, the shallowness of our downturn highlights how monetary policy may have been able to shoulder a greater burden in minimising the impact of the global crisis in Australia and the significant additional cost and burden on current and future Australian taxpayers. I will comment more about the interplay between current fiscal and monetary settings in a few minutes.

What cost has been and will be placed on taxpayers as a result of the government’s decision to rapidly plough headlong and without proper consideration into committing almost $80 billion to the Australian economy in order to stimulate it? It is money that can only be viewed as the largest pork-barrelling exercise in Australian history. Firstly, there is the obvious and well understood future to be faced by all Australians—a future where every man, woman and child will be shackled with $15,000 of debt. It is a debt that each of them will need to repay through their taxes, together with interest. Of course, there are only two ultimate outcomes that can result when a government takes its people into massive debt. The first is that the government seeks to pay interest and hopefully some principal by taking that money out of the tax revenues that it receives. If it takes this path then it must divert money from its spending on the services that it delivers—services like health, national security and education. That is not an attractive political option and is rarely in the interests of Australians.

The second outcome is that it seeks to raise additional money to pay interest and make debt repayments. The only way it can do this is by raising taxes. Raising taxes is, again, not generally a politically attractive option but one which a socialist Labor government can feel it can get away with, if it only hits the rich. But, given the size of the debt that this government is taking us into, new taxes will have to be far more broad based than just on those very rich people that Labor feels it can safely stigmatise as deserving of higher taxes. This is why Labor’s refusal to rule out new taxes, like a capital gains on homes valued at over $2 million, should be of major concern to the majority of Australians who cannot possibly ever hope to own a home worth that much. But the tax will not stop there. Rest assured, when Labor introduces new taxes to hit the rich, it will end up being the hardworking middle class—those who earn two incomes or who are struggling to feed, clothe, house and educate their family on one income—who will end up being caught by every one of these taxes.

You only have to look at the measures that this government has introduced in the last couple of years when they have played with thresholds to see what level of income they think qualifies a family as being rich. They include measures such as their first wildly criticised, badly botched and mishandled attempt to tighten up taxation arrangements on employee share options—they have fixed it up now to some extent—which classed the rich as earning in the range of $55,000. How many Australians would consider themselves rich if their household income was in the $50,000 range? Not many, I would venture. But, ultimately, as a direct result of this government’s reckless spending and its totally stubborn refusal to divert from the hard and rigid path that it has set for itself, people earning an income in this range may well be staring down the face of new and higher taxes.

Yesterday, I asked Minister Sherry what impact this reckless spending would have on higher taxes and higher interest rates, and he completely failed to address the question. One can only presume that the question was too close to the bone for him to comment on. But the consequences of the government’s reckless and record spending spree extend further than to just what new and higher taxes Australians will have to pay or which hospitals or which schools the government will to have to cut funding to. As noted by the three economists mentioned earlier, there was room for more action to be taken on interest rates that could have helped to foster economic growth. Unlike other countries such as the US, where official interest rates are effectively at zero per cent, Australian official rates have bottomed out at three per cent. This gives the RBA scope to reduce their official rate further. As most Australians know, the level of the official interest rate can be increased to act as a brake on economic activity in circumstances where the RBA assesses that the economy is growing or is likely to grow at a rate higher than it considers desirable to maintain the inflation rate within the target range of two and three per cent.

Similarly, official interest rates can be lowered in order to stimulate the economy when the RBA considers that the economy is not growing fast enough to maintain employment levels. This works either by deliberately removing money from the wallets of Australians in small businesses, thereby lowering economic activity, or conversely by deliberately placing more money into their hands through lower interest rates so that there is more money going around in the economy. It is called monetary policy. The most recent movements of the cash rate have been down. The RBA took decisive action to rapidly reduce that rate, not just to put more money into the economy but also, through the size and speed of those reductions, to send a very strong message to the community as a whole to help promote confidence. However, as noted, that action only took interest rates down to three per cent—a rate certainly lower than the level we normally experience in Australia but much higher than that which currently exists in comparable nations.

So there was scope for the RBA to reduce rates further—underutilised capacity to drive additional economic growth. It appears unlikely that it now will be employed given the recent comments of the Governor of the Reserve Bank of Australia before the House of Representatives Standing Committee on Economics in Sydney last week and as apparent from the minutes of the RBA's last meeting, which were released this week. Both show that interest rates are now on an upward setting.

It is important to note that the use of monetary policy—that is, the manipulation of official interest rates to stimulate the economy—is far more taxpayer friendly than the use of fiscal policy. Think about it: if you seek to stimulate the economy by borrowing money and handing it out in the hope that some of it will be spent in the economy, the end result can only be—even if it works—that taxpayers have to repay the borrowed money with interest. Ultimately, the cost of the measure will be borne in full by the taxpayers of Australia directly out of their pockets together with interest.

Compare this with the use of monetary policy—the reducing of interest rates to leave homebuyers and small businesses with more money in their pockets to stimulate spending, make the economy go around and directly help ensure the viability of small businesses and the security of the people that they employ. The end result of the employment of monetary policy is that taxpayers have more money in their pockets upfront and no long-term debt to repay through their taxes. I would think that anyone would have to agree that monetary policy—that is, reducing interest rates—is a far preferable tool, from the perspective of the taxpayer, than is the use of fiscal policy—that is, borrowing and spending up big. These are the consequences of the decisions made by the government. Their reckless spending spree, a spree that will leave every man, woman and child in Australia with $15,000 of debt, now appears to have been excessive, given that the then complementary and far more taxpayer friendly monetary policy was not fully utilised.

What about the situation looking forward? The government has refused in recent days to consider winding back its unnecessarily large and burdensome stimulus package. But just on Friday, as mentioned, the RBA governor said that we are looking down the barrel of increasing interest rates. Why would this be the case? The only reason the RBA would be looking to increase interest rates would be to avoid the economy, or parts of it, from growing too fast. Let me state that again: we Australians—small businesses, mortgage repayers and homebuyers—are staring down the barrel of having to pay higher interest rates. I can assure you that if official interest rates go up the banks will pass it on in full. We are looking down the barrel of interest rates being increased specifically to slow the economy, to curb economic growth and to maintain that desirable balance. Yet at exactly the same time as the RBA is looking to put up interest rates to slow the economy we have the government continuing its stimulus package to deliberately cause the economy to grow. Consider that: fiscal and monetary policy completely in conflict with each other. Only a few months ago the Treasurer was saying how well they were working together and how complementary fiscal and monetary policies were, and here we are looking in the next few months at the possibility of fiscal policy and monetary policy smashing head on.

Indeed, the RBA have factored in the full impact of the government’s oversized stimulus packages running their full course. The governor said that, in considering where interest rates might have to go, they have taken into account the full impact of the planned continuation of the stimulus package. Given that that is fully factored into the RBA’s consideration, it is probably the case that, if the RBA do increase rates, it would not just be in conflict with, but because of, the government’s continuation of its stimulus package. So those people out there who are buying homes and those small businesses who have loans that they are trying to repay are going to have to suffer higher interest rates. The government is continuing its stimulus package and is showing no sophistication in its approach and no willingness to look at the situation and say, ‘Where is the economy now? Why don’t we just maybe adjust it here and wind things back?’ Why does the government not try to assist Australian taxpayers? Because it has a hard, rigid approach and no sophistication.

It would be interesting to speculate what the IBA would currently be saying—whether it would be on an upward interest rate warning—if the government were actually prepared to say that it would wind back its stimulus package as appropriate, but no—