Gerard Rennick (Queensland, Liberal Party) Share this | Link to this | Hansard source

Having faced their toughest year in living memory, Australians will need to make some important decisions to ensure that we do not leave unsustainable debt levels for our children. Tax reform won't be enough to deal with the estimated $1 trillion that many expect government debt to reach before the impacts of COVID are overcome. It is therefore necessary to look at other areas of reform—in particular, monetary policy.

Monetary policy was outsourced to unelected officials at the RBA by Paul Keating in 1992 in one of the greatest acts of democratic vandalism this country has ever seen. A government cannot control its economy if it doesn't control its currency. The last four governors of the RBA and most of its senior executive have only ever worked at the RBA. Their lack of knowledge when it comes to monetary policy became apparent when they lowered interest rates to zero, destroying the retirement incomes of our seniors and inflating house prices beyond the reach of our younger generation.

Rather than just change interest rates, they should have also adjusted the volume of money in the system. The expansion of credit should have then been used to fund nation-building infrastructure such as dams, power stations and transport corridors. Such a policy would create jobs, provide essential services and generate income for the government. Increasing the supply of energy, freight and water would also lower costs for business. Indeed, the 1937 banking royal commission expressly said that the central bank should control the volume of credit in the system.

This was the Australian government policy until 1985, when Paul Keating, in another great act of economic vandalism, allowed foreign banks into Australia. This effectively outsourced control of the monetary supply to unelected foreign banks, with no oversight of how foreign capital was invested. In 1985, the total amount of foreign debt held by financial institutions in Australia was $10 billion. By 2008, it was $800 billion. Most of this foreign debt was invested into housing, so today the average house price is almost 13 times average earnings, up from four times average earnings in 1985. The RBA, in complete ignorance of its role, sat on its hands, allowing the housing bubble to inflate, while other sectors of the economy, notably manufacturing, starved through a lack of credit. Furthermore, they have allowed foreign capital to take ownership of our essential infrastructure and much of our wealth. It's time for a new way of thinking.

The first myth that needs to be busted is that Australia has always relied on foreign capital. This way of thinking has resulted in the sale of critical infrastructure, unsustainable foreign debt levels in both the private and the public sectors, and billions of dollars in profits being sent offshore for the last 35 years.

Those who truly understand finance know that capital doesn't create wealth. In the words of our national anthem, wealth comes from toil. It comes from turning rainwater into energy and water into irrigation; sunlight into fields of wheat, barley and cotton; and iron ore into steel to build our roads and housing. As I said in my maiden speech, when the convicts got off the boats all they had was their will to survive. There were no financial instruments, regulations, scoping studies or subsidies in sight. Our prosperity has come from the hands of our carpenters and mechanics, the minds of our scientists and engineers, the hearts of our teachers and nurses and, most importantly, the persistence and innovation of small business owners.

Capital is not an asset but rather the means by which an asset is controlled. It is either debt or equity. In a lending arrangement, the lender has the power over the borrower. Those who say that we need to attract foreign capital are in effect saying that Australia should hand over its assets to foreign control. What's the point of being a sovereign nation if you don't maintain sovereignty over your infrastructure or banking system? Australia's way of life doesn't depend on foreign debt but rather on the ability to generate wealth. True wealth is the capacity to produce goods and services to ensure self-reliance and independence. It's worth noting that under Robert Menzies foreign debt was reduced to almost zero, while at the same time home ownership rose from 54 per cent to 70 per cent under his leadership.

To ensure that our nation's wealth is passed on to our children it is vital that the government funds wealth-creation projects via its own currency rather than foreign currency. This was well understood by modern Australia's founding father, Lachlan Macquarie. He was the first governor to see Australia as a country rather than as a colony, and in order to fund infrastructure for the fledgling colony he introduced an official currency, the holey dollar, to fund significant capital projects, many of which still stand in Sydney today. Today the holey dollar is the logo for Macquarie Bank, which, like many private banks, profits from the sale of infrastructure, aided and abetted by superannuation funds.

If 30 years of neoliberalism has taught us anything it's that markets don't build infrastructure, governments do. Markets do not have the patience for the long lead time it takes for infrastructure projects to return a profit; nor do they tolerate the regulatory risk imposed by belligerent bureaucrats who are determined to impede rather than enable progress. Take, for example, the Bradfield Scheme. If it were to cost $5 billion to build and the funding capital were funded via foreign debt, the first $5 billion in wealth would be lost to foreign investors. If the cost of interest were added in, the amount of wealth lost could easily double.

In financial terms sovereignty is equity, so why do governments give up the security of our wealth so easily to foreign banks when our own government can fund infrastructure? The privatisation of infrastructure by government has been a failure. It has jeopardised Australia's economic sovereignty and created inner-city millionaires while leaving our regions destitute. How can we teach our children to be self-reliant when we've left them nothing in the cupboard to rely on?

While indeed money can't be printed out of thin air, wealth is generated from thin air by sunlight and water. Monetary policy can stimulate fiscal policy through the issue of infrastructure bonds by the RBA to an independent standalone infrastructure bank that reports to the Treasurer and parliament. It should have a strict mandate of investing in certain asset classes, such as dams, power stations, transmission networks, transport corridors, ports and oil refineries. It's time for the RBA to stop sitting on its hands and start funding significant nation-building infrastructure projects.

Productivity is the key to any successful economy, regardless of ideologically driven notions around economic philosophy. It is ultimately the job of government to create an economic environment to ensure that people are appropriately rewarded for their efforts and that markets remain fair, competitive and efficient. Part of Australia's recovery must be to re-establish our sovereign economic capacity. The pandemic laid bare just how important self-reliance regarding the issue of global supply chains is. They cannot be guaranteed, and a mandate of the infrastructure bank should be to ensure that Australia has the capacity to stand on its own feet in times of crisis, whatever those may be.

To understand how effective monetary policy can be, compare China with the US over the last 40 years. China has lifted a billion people out of poverty because its central bank, not private banks, funded the development of dams, power stations and transport corridors. It has also accumulated around a trillion dollars in US government bonds. On the other hand, the US has outsourced most government responsibilities to the private sector, including its central bank, resulting in over $20 trillion of federal government debt, decaying infrastructure and unfunded public service liabilities that threaten the solvency of many of its states.

It is also time to overturn the autonomy of the RBA. In a democracy, decisions relating to interest rates and infrastructure development need to be subject to the approval of the people. Otherwise, where is the accountability? Who do retirees hold to account for the destruction of their savings income? The point of democracy is to hold government to account, yet how can this happen if the RBA is completely independent from government? It is important to note the distinction between an infrastructure bank and modern monetary theory. An infrastructure bank will create wealth by increasing the production of goods and services, whereas modern monetary theory will facilitate consumption, rather than production, of goods and services. To recover from COVID, Australia must abandon the policy of infrastructure privatisation and interest rate manipulation introduced by a reckless Labor Party and, instead, focus on building infrastructure that will provide a path to prosperity for our children.