Bruce Baird (Cook, Liberal Party) Share this | Link to this | Hansard source

On behalf of the Standing Committee on Economics, Finance and Public Administration, I present the committee’s report entitled Review of the Reserve Bank of Australia Annual Report 2006 (Second Report) together with the minutes of proceedings.

Ordered that the report be made a parliamentary paper.

The August 2007 hearing was conducted in the light of a strong domestic economy but at a time when there was some volatility on global markets as a result of growing problems in the US subprime mortgage market. The rising delinquency rates in the subprime mortgage market had resulted in a sharp fall in prices to mortgage backed securities and collaterised debt obligations, which created problems for the holders of these products. During this period, a number of central banks acted to increase liquidity in the banking system. Notwithstanding these problems, the Reserve Bank of Australia reported that global growth remained strong. The RBA stated that, while there had been a slowing in the United States, this had largely been confined to the housing sector, with the wider economy still growing at a reasonable pace.

The June quarter CPI figures revealed an increase in inflation. The RBA raised its December 2007 underlying inflation forecast to three per cent, which was the top of its target band. On 8 August, based on the new inflation data and other information, the RBA raised rates by 25 basis points to 6.5 per cent. The committee examined the RBA on the accuracy of its inflation forecast in view of the fact that its August forecast for December 2007 inflation was 50 basis points above its May forecast. The RBA governor explained that, while there was pick-up in inflation during 2006, one quarter revealed a softer figure. It is not clear whether that was a new trend or an aberration. Notwithstanding this, Mr Stevens concluded that the ongoing strength of demand in a fully employed economy might leave us with inflation pressure that is harder to manage than expected.

In conclusion, I take this opportunity to say a personal farewell. The public hearing on 17 August was my final hearing as chair of the committee, as I will not be standing for re-election in the forthcoming 2007 election. I took over from an outstanding chair—namely you, Mr Speaker—and it has been my pleasure to be in that role. I thoroughly enjoyed the responsibility and the challenge of being chair of the committee, and I appreciate the contribution of my fellow committee members. The committee has worked extraordinarily well together. I commend my colleagues from both sides of the House—Ms Bird, who is the deputy chair of the committee and the member for Cunningham, and also Dr Craig Emerson and my other colleagues. It has worked well.

It was also the view of the committee that the professionalism, competence and diligence of the secretariat members were quite outstanding. It was the view of the committee that we should write to the Clerk to reflect our high regard for the committee and to inform the Clerk that they represent the highest standards of parliamentary officers. I believe that should be recorded. It is with pleasure I commend this report.

Craig Emerson (Rankin, Australian Labor Party, Shadow Minister for Service Economy, Small Business and Independent Contractors) Share this | Link to this | Hansard source

I join with the committee chair to pay tribute to the work of the secretariat. I also take the opportunity to congratulate the chair, the member for Cook, for his outstanding service to the parliament. Most particularly, I have valued his interaction with me in his capacity as Chair of the House of Representatives Standing Committee on Economics, Finance and Public Administration. He has discharged his obligation with great credit to the parliament and to the people of Australia. He has been impartial, as best as you possibly can when you are a member of a political party, in ensuring that the right questions were asked and that members on both sides of the parliament were not constrained unduly. Thank you very much, the member for Cook and chair.

This review highlights the inflationary pressures in Australia. Those pressures are greater now than they have been at any time in the recent past. I recall that, when the underlying inflation forecast was 2¾ per cent, the Reserve Bank was very anxious about it. After the latest interest rate rise, the underlying forecast is still three per cent, which is at the top of the band. So there are very strong inflationary pressures persisting in the system. At the previous hearings, in February, I asked the Governor of the Reserve Bank whether the bank would increase interest rates in an election year. The answer was: ‘Of course. We can’t abrogate the conduct of monetary policy for one in every three years.’ At the most recent hearings in August, I asked a follow-up question—a supplementary, if you like: ‘Would the Reserve Bank increase interest rates in an election campaign?’ I must say that I thought the Governor might hedge or hesitate on that, but he did not. In fact, he was very forthright. He said:

... if it is clear that something needs to be done, I do not know what explanation we could offer the Australian public for not doing it, regardless of when the election might be due.

What he was saying was that, yes, the Reserve Bank, as an independent organisation—an inflation targeting Reserve Bank—would increase interest rates during an election campaign.

What are the prospects of that? I think they are real. I am not saying they will go up during the election campaign itself but, sooner rather than later, it would appear that the onward march of interest rates will continue. We have already experienced five interest rate rises since the last election and nine in succession since 2002. I was fascinated to hear the Prime Minister’s response to a question from the Leader of the Opposition on 8 August. He said:

My question is, again, to the Prime Minister. Prime Minister, did the Liberal Party run this advertisement during the party’s 2004 election campaign and does the advertisement state that the Liberal Party, if returned to office, would keep interest rates at record lows?

I thought that the Prime Minister’s response was astonishing, and I would imagine that the member for Cunningham was equally astonished. He said:

The Liberal Party ran many advertisements, and I remind the Leader of the Opposition of what I have said previously in the House. He can scour every transcript—and I will make them available—of every interview that I gave during that election campaign and he will find no such commitment.

So we have got the Prime Minister of Australia with this commitment to keep interest rates at record lows, and we saw placards on the podium and no doubt behind him, and now he says: ‘That wasn’t me. Don’t blame me; it is just the silly old Liberal Party’—of which he is the leader. He disowned, in this parliament, a statement that was made repeatedly during the 2004 election campaign: that the government, if re-elected, would keep interest rates at record lows. Now he seeks to deny it. No wonder Shane Stone described him as ‘mean, tricky and out of touch’. He certainly is very tricky. He is a very cunning politician, but no-one in Australia would accept the argument made by the Prime Minister in this parliament that he never made any such commitment but that it was just the silly old Liberal Party, with which he has some kind of loose connection, but he is not responsible for placards on the podium or behind him. The pressure will be on. The subprime lending problems in the United States may abate that pressure for a time but we are facing, sooner rather than later, the prospect of a 6th interest rate rise since the last election, when the Prime Minister did promise to keep interest rates at record lows.

Ian Causley (Page, Deputy-Speaker) Share this | Link to this | Hansard source

The time allotted for statements on this report has expired. Does the member for Cook wish to move a motion in connection with the report to enable it to be debated at a later time?

Bruce Baird (Cook, Liberal Party) Share this | Link to this | Hansard source

I move:

That the House take note of the report.

Ian Causley (Page, Deputy-Speaker) Share this | Link to this | Hansard source

In accordance with standing order 39, the debate is adjourned. The resumption of the debate will be made an order of the day for a later hour this day.