Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister representing the Prime Minister in this chamber, the Leader of the Government in the Senate, Senator Evans. In light of the Reserve Bank’s latest warning about inflationary pressures and the challenging conditions of the global economy, can the minister inform the Senate what action the government is taking to address the challenge of inflation?

Chris Evans (WA, Australian Labor Party, Leader of the Government in the Senate) Share this | Link to 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—

Opposition Senators:

Opposition senators interjecting—

Alan Ferguson (President) Share this | Link to this | Hansard source

Order! The Senate will come to order and then we will continue.

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

Each warning from the RBA was ignored and so the inflationary pressures have slowly increased to produce the highest rate of inflation in 16 years. That is the Howard-Costello legacy. Inflation is our most pressing domestic challenge. It hurts working families and businesses, eats away at savings and threatens our national prosperity, and puts pressure on interest rates. The December CPI data released in January showed underlying inflation at 3.6 per cent, the highest rate for 16 years. Figures like that steel the government’s determination to win the war on inflation. This government will not sit back and watch inflationary pressures rise until they overflow. We did not create this problem, but we do take responsibility for it.

Opposition Senators:

Opposition senators interjecting—

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

If the opposition thinks that inflationary pressures started on 24 November, I would be very surprised. The Prime Minister is implementing a five-point plan to fight the inflation legacy. We will tackle it head-on. The opposition may want to deny it, but that is the greatest challenge facing our economy. It does have to be tackled. We have a plan to fight inflation. We will take it seriously, because unless it is tackled Australian families will suffer.