George Campbell (NSW, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister representing the Minister for Finance and Deregulation, Senator Sherry. In light of the serious inflation problem inherited from the former Liberal government, can the minister inform the Senate of what necessary action the government is taking to put maximum downward pressure on inflation and interest rates?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

Thank you, Senator Campbell, for raising what is a very, very important issue—the Labor government’s fight against inflation. At the present time there are a number of significant economic challenges from inflationary pressures, domestic capacity constraints and global economic uncertainty. At the present time the underlying inflation rate is running at approximately 3.6 per cent. The Reserve Bank independently determines interest rates and its band for inflation is between two and three per cent. So the current underlying inflation rate of approximately 3.6 per cent is clearly outside that band. It is the legacy that we have been left by the former Liberal government. What we have now is a level of inflation that is the highest rate in 16 years. And higher inflation puts upward pressure on interest rates. That is why this Labor government is determined to tackle this issue. Higher inflation and higher interest rates eat into family budgets; they hurt Australian working families.

The Treasurer, the leader of the government—the Prime Minister, Mr Kevin Rudd—and Lindsay Tanner in particular have put forward a vigorous program of fiscal restraint. At the same time that inflation was escalating, the 2007-08 Mid-Year Economic and Fiscal Outlook indicated that real government expenditure was increasing at a rate of about 4.5 per cent. That high rate of real spending is not sustainable, and the new Labor government, having already committed to re-establishing fiscal discipline, has identified savings of some $10 billion over the forward estimates. The Labor government is committed to being fiscally conservative. We reiterated that over and over again before the election. That was a promise made: this will be a fiscally conservative Labor government.

In addition to the $10 billion in savings that I have referred to, we are reordering expenditure priorities in order to reduce the inflationary pressures that we currently face. The government aims to deliver a budget surplus of at least 1.5 per cent of gross domestic product in 2008-09. Contrast that with the former Liberal government: their outcome was estimated to be at one per cent of GDP. We are aiming to deliver a budget surplus of 1.5 per cent of GDP in 2008-09. We intend to go about this with a rigorous and disciplined process. We will be identifying a range of savings to reach that 1.5 per cent target. It is critical to bring inflation under control, and significant fiscal restraint is an important element in bringing inflation under control.

Already the finance minister has identified some $642 million in savings. He announced those last week. There will be additional savings announced on budget night. I reiterate that one of the essential elements is to tackle the legacy of higher inflation, which we have been left by the Liberal government, at a 16-year high. We are determined to tackle this because higher inflation means higher interest rates and that hurts Australian working families. We are determined to tackle this issue by being fiscally conservative, unlike the opposition former government.

Mary Fisher (SA, Liberal Party) Share this | Link to this | Hansard source

My question is to the Minister representing the Minister for Employment and Workplace Relations, Senator Wong. Has the government sought advice on the inflationary impact of its proposed workplace relations legislation?

Penny Wong (SA, Australian Labor Party, Minister for Climate Change and Water) Share this | Link to this | Hansard source

It is interesting, isn’t it, that those on this side of the chamber are very clear about the importance of the fight against inflation both in terms of what we have been doing since we were elected to government and what we indicated prior to the election in our approach to ensuring that our workplace relations changes did not in any way add to inflation? As Senator Sherry previously indicated, the government is determined to fight inflation. We are clear that one of the planks on which we will do that is fiscal restraint. That may be something that those opposite seem to no longer understand now that they are in opposition, but we regard that as important. We have a five-point plan to fight inflation, which includes setting a fiscal target surplus of 1.5 per of GDP.

We will also tackle the supply-side constraints which for so long were not the subject of attention of the former government. We will also address inflationary pressures through a fair and balanced workplace relations system as we outlined we would before the election. I want to emphasise what we stated: our system would be based on bargaining at the enterprise level, with productivity gains as the incentive for wage increases. I want to emphasise what the Deputy Prime Minister has said and what the Prime Minister said prior to the election, which was made very clear to the Australian people. We will not be returning to a system of centralised wage fixation. Under our system, a wage outcome in one enterprise or one sector will not flow automatically into another.

Unlike those opposite, we do not believe in addressing inflation by simply suppressing the wages of the worst paid workers in Australia, which was the effect of the extreme Work Choices laws which this opposition passed in government and which, as we see today in the Senate chamber, the opposition are determined to keep in place for as long as possible.

Mary Fisher (SA, Liberal Party) Share this | Link to this | Hansard source

I rise on a point of order, Mr President. My question was not about Work Choices. My question was about Labor’s plans for the future and whether the government have sought advice on the inflationary impact of their workplace relations legislation. It was not about their motherhood policy statements; it was about whether they sought advice—

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

I have heard enough, Senator Fisher; resume your seat. I have listened carefully to Senator Wong’s answer, and I believe that she is being relevant to the question that was asked.

Penny Wong (SA, Australian Labor Party, Minister for Climate Change and Water) Share this | Link to this | Hansard source

If the senator opposite did not understand what I was saying, I will say it again. We will have a fair and balanced workplace relations system based on bargaining at the enterprise level, with productivity gains as the basis for wage increases. That is the incentive for wage increases. We are not returning to a system of centralised wage fixation or of industry-wide strikes or pattern agreements across an industry. That was very clearly the approach we outlined prior to the election. We are attempting, despite the fact that the opposition does not like it, to implement our policies through the introduction and passage of the transition legislation through this chamber. I look forward to the opposition’s support for a piece of legislation which will end the wage-stripping and condition-stripping Australian workplace agreements.

Mary Fisher (SA, Liberal Party) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. Given that Senator Wong has outlined that part of the priorities of the government are economic management, given that Management 101 is that you cannot manage what you are not measuring and given that she has failed to answer the question, therefore I presume that the minister has not sought advice. My supplementary question is: can the minister guarantee that the inexperienced Labor government’s workplace relations legislation will not lead to a wages break-out and inflationary pressure?

Penny Wong (SA, Australian Labor Party, Minister for Climate Change and Water) Share this | Link to this | Hansard source

What I can guarantee is this: we will deliver on the commitment we made to the Australian people before the election to remove your unfair extreme Work Choices laws. I can guarantee that we will deliver on our commitment to ensure that productivity increases and productivity gains are the incentives for wage increases under our system. As I have said, under our system, a wage outcome in one enterprise or sector cannot automatically flow into another. This government understands the importance of government across the range of portfolios, including in industrial relations. We understand the importance of fighting inflation. That is why we put in place a range of savings measures and that is why we will put in place, as we committed, an industrial relations system in which productivity gains are the incentive for wage increases and in which wage bargaining occurs at the workplace.