Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

My question is to Senator Minchin, the Minister representing the Treasurer. I refer the minister to the latest inflation figures, which show that the headline rate has increased to 3.9 per cent for the year to September and is growing. Are not the latest inflation figures now well outside the Reserve Bank’s target range of between two and three per cent? Why did the Prime Minister describe the inflation rate as extremely low by historical standards? How could the Prime Minister, Mr Howard, be so out of touch that he thinks that growing price rises across the economy, including almost a 10 per cent increase in the cost of food, are extremely low rates of increase for families to have to cope with?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

I thank Senator Sherry for the question. He is right: inflation is a significant issue and one that we certainly take very seriously. I think the answer should be set against the fact that under our government inflation has averaged 2.6 per cent, and under the previous government it averaged 5.2 per cent. To that extent the Prime Minister is quite right to say that, over the period of our time in government, inflation has actually been half the rate of inflation that occurred under our predecessors, the Labor government, when inflation got completely out of control.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

What happened when Howard was Treasurer?

Paul Calvert (President) Share this | Link to this | Hansard source

Order! Senator.

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

Mr President, Senator Sherry asked the question. I would like an opportunity to answer it. As to the question of the rate of inflation and the target set by the Reserve Bank, the last inflation rate on an annual basis was a 3.9 per cent figure, influenced most particularly, as Senator Sherry knows, by the significant increase in the cost of food, which has had a number of impacts upon it, not least the drought and the cyclone, and also by the costs of transport fuels which, as he well knows, have increased substantially for reasons totally beyond the control of the Australian government.

The Reserve Bank’s target is to keep inflation between two and three per cent over the course of the economic cycle. It always looks at underlying inflation and inflation across the cycle; it does not just take one period of inflation and react immediately. The great policy virtue of the current settings is of course that the Reserve Bank has been granted independence in the setting of monetary policy, and it does so on the basis of keeping inflation in the band over the course of the economic cycle. It is one of the most significant policy decisions this government has made and one of the most important. The Reserve Bank is credited throughout the world with having managed monetary policy in this country extremely well against the backdrop of all the things we have done as a reformist government to ensure that we keep to a minimum inflationary pressures in the economy.

So inflation is a serious issue. It is critically important that the Reserve Bank observes its charter and acts in relation to monetary policy to ensure that the inflation genie never gets back out of the bottle, as it has in the past in this country—and, I concede, not only under the former Labor government but under former coalition governments that predated the former Labor government. The great thing about our period of government is the independence of the Reserve Bank and the fact that we have reformed the economy in such a fashion that there is less pressure on inflation. The record speaks for itself: average inflation under our government is at 2.6 per cent; under our predecessors it was 5.2 per cent.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. If the government has not lost control of inflation, why have there been seven successive increases in interest rates since May 2002, including three since October 2004, when the Liberal government promised to keep rates low? Why does the government try to blame everything and everyone but itself? Why doesn’t it take some responsibility for rising inflation and rising interest rates?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

The premise of the question is utterly absurd. As I just said, inflation under our government has averaged 2.6 per cent and under the government of the party which Senator Sherry belongs to it averaged 5.2 per cent. The government has not lost control of inflation. The government is determined to ensure that inflation remains under control. Interest rates under our government have averaged some 7.17 per cent compared with 12.75 per cent under the former Labor government. Australians are much better off after 10 years of our government than they ever were under 13 years of Labor.