Paul Scarr (Queensland, Liberal Party) Share this | Hansard source

I'm very pleased to rise in support of my good friend Senator Dean Smith's motion in relation to inflation. We should remember that inflation is, in practice, the greatest tax of all. I want to quote from a book that I frequently quote from in this place called Basic Economics. It's very appropriate that I quote from this book following the contribution of the Leader of the Greens in this place. This is what it says in relation to inflation:

… inflation is in effect a hidden tax. The money that people have saved is robbed of part of its purchasing power, which is quietly transferred to the government that issues new money.

Inflation is not only a hidden tax, it is also a broad-based tax. A government may announce that it will not raise taxes, or will raise taxes only on "the rich"—however that is defined—but, by creating inflation, it in effect transfers some of the wealth of everyone with money, which is to say it siphons off wealth across the whole range of incomes and wealth, from the richest to the poorest.

So not only is inflation a hidden tax; it is a regressive tax and it affects the poorest in our community. It affects those in our community who have the fewest options in how they manage their economic affairs. Typically, we're talking about low- and medium-income earners.

I want to take issue with some of the contribution Senator Payman made in this debate when she defended the government's proposed housing fund. Let me say this about both the housing fund and the so-called National Reconstruction Fund. The fact of the matter is that the government has successfully passed the legislation for the National Reconstruction Fund and is proposing the housing fund, which will total $25 billion of extra borrowings. The government is actually proposing for the housing fund to borrow $10 billion today and invest that to hopefully generate returns in the future which can be invested in housing. That is the proposition. So, instead of simply paying for housing as we go, year by year, they are proposing to borrow $10 billion, to issue $10 billion worth of bonds or however else they propose to raise this money, go into the market, borrow additional money and then seek to invest it.

If you want to know the weakness in that sort of strategy, all you need to do is look at the 2021-22 annual report of the Future Fund. It's the Future Fund which is going to be commissioned with the role of investing the $10 billion. If you look at the results of the Future Fund for the period ending 30 June 2022, you will see the dangers involved in that sort of strategy. In the year ending 30 June 2022, in relation to the Future Fund, because we are in a high-inflation environment, a very difficult environment for investors, the chairman, Peter Costello, said:

In a year in which global equities and global bonds fell by more than 10% each and where the Australian stock market fell 6.5%, the return of -1.2% was a pleasing outcome.

Not even taking into account inflation, running in Australia at seven per cent, the Future Fund generated a return of minus 1.2 per cent. And it was the same with respect to the other funds which are administered by the Future Fund, including the Medical Research Future Fund, the Aboriginal and Torres Strait Islander Land and Sea Future Fund, the Future Drought Fund, the Emergency Response Fund and the DisabilityCare Australia Fund. All of them went backwards. Every single one of them went backwards even before you add the inflationary impact.

So the government is essentially going to be spending a bucketload of money under this budget and it has to go out and borrow that money. There is a bond issued at the moment, which will be closing on 10 May, tomorrow, to raise $800 million, with an interest rate of 3.25 per cent. You can go onto the Australian Office of Financial Management website and see this. But what horrifies me is that on 21 November 2024 the government is going to have to refinance some $41.3 billion which currently has an interest rate of 0.25 per cent.