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

I move:

That the Senate take note of the answers given by the Minister for Finance and Administration (Senator Minchin) to questions without notice asked by Senators Sherry, Wong and Stephens today relating to inflation and interest rates.

Today the Labor opposition put a number of questions to Senator Minchin, Minister representing the Prime Minister, Mr Howard, concerning Prime Minister Howard’s recent comments about the increase in inflation rates and his subsequent comments about the need to increase interest rates in Australia. As our questions referred to, inflation in this country in the year ending September has increased to 3.9 per cent.

That increasing inflation rate has two serious implications. One is the obvious impact on Australian households, and no better place can this be illustrated than in the area of food. It is not the usual banana excuse that we get from the government. If the Prime Minister took a few more trips to the supermarket, he might understand the impact the increase in food prices is having on Australian families. The price of food in the year to September increased by almost 10 per cent in this country. Perhaps the Prime Minister should take a few more trips to the supermarket to understand why Australian families are hurting. Vegetables are up by 9.3 per cent, bread is up by eight per cent, soft drinks are up by 6.8 per cent, eggs are up by 6.5 per cent, pet food is up by 6.2 per cent, tea and coffee are up by 6.2 per cent and the list goes on. The government in this country has lost control of inflation.

What is remarkable about the Prime Minister’s head-in-the-sand, out-of-touch attitude is that he referred to the inflation rate—an increase of 10 per cent in the price of food—as extremely low historically. Go to the average family that is facing a massive increase in the price of food across the board, not just bananas, and argue that the price of food increasing by 10 per cent is extremely low by historical standards. That is no great compensation. Go and talk to the average family when they are shopping and say that the price of food going up by 10 per cent is extremely low—that is no great consolation to them, as the Prime Minister would suggest. They still have to pay for it.

Even more concerning is the head-in-the-sand approach of the Prime Minister when it comes to the impact on interest rates. We will know all about that on Wednesday. At the last election the Prime Minister ran around the country saying, ‘We’ll keep interest rates low.’ What has happened since the election? Three increases in interest rates. It was truly amazing when the Prime Minister said, in response to this increasing inflation figure that has happened on his watch:

What you have to consider is that if you don’t have an interest rate rise then it is possible there will be a further boost in inflation because of the strength of the economy and a bigger rise might be needed further down the track …

Here you have the Prime Minister of Australia, in response to the escalating inflation figures, not only abrogating and reversing his promise from the last election that interest rates should be kept low. The Prime Minister, Mr Howard, is urging the Reserve Bank to increase interest rates.

Jeannie Ferris (SA, Liberal Party) Share this | Link to this | Hansard source

Stop shouting!

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

Well, we have got to get the message through to those government senators. You are just out of touch. At the last election, the Prime Minister ran around the country saying, ‘We’re gonna keep interest rates low.’ Since the election there have been three increases in interest rates. And here, a week and half ago, the Prime Minister is urging the Reserve Bank and advocating that it should increase interest rates. He went on and said, with respect to an increase in interest rates:

That could well be the philosophy of the Reserve Bank, and if it does, it will be hard to criticise that.

Here is the Prime Minister not only urging the Reseve Bank to increase interest rates on Wednesday but also saying you cannot criticise it. What did he do at the last election? He ran around the country saying, ‘We’ll keep interest rates low.’

At least we made one advance today. Senator Minchin acknowledged that when Mr Howard, the Prime Minister, was last Treasurer of this country, interest rates were at 22 per cent. He finally acknowledged what happened when Mr Howard was Treasurer. (Time expired)

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

It always amazes me when I stay in this chamber and listen to people like Senator Sherry from the Labor Party talking about interest rates. When Senator Sherry in 1989 was probably looking after his friends in the liquor and hospitality union, I was paying 24 per cent interest rates under a Labor government. And Senator Sherry has the hide to come into this place and complain about interest rates that are a shade over seven per cent.

Senator Sherry talks about the increase in food prices. He obviously leads such a sheltered life that he does not realise that we are experiencing the worst drought in 100 years. What does he expect would happen to food prices with the demand that is currently placed on the few sources of food that are still available? Do you expect food prices to stay at the same level in the middle of the worst drought that we have had in 100 years? That is how much of a sheltered life Senator Sherry has led. Maybe he has only just started going to the supermarket; I do not know. But I can tell you that we have not seen the worst of food prices going up because the drought, and the effect that that is having across the whole of Australia, is going to ensure that food prices are going to go up. There is simply nothing we can do about that. What does Senator Sherry expect the government to do—make it rain? That is the only way we can make sure that food prices in supermarkets come down to a reasonable level; that is when we get a greater supply.

Senator Sherry wants to get a few facts on that table, and seeing that he would not put them there I think I should. Under the Howard government inflation has averaged 2.6 per cent. Under Labor it averaged 5.2 per cent, exactly twice as much. And to keep inflation low and interest rates low we have made substantial reforms to the economy, every one of them opposed by Labor. Every one of those reforms to make our economy more efficient and more productive, Labor has opposed. Keeping the economy strong, getting unemployment under five per cent, keeping inflation in check and reducing interest rates from the 1996 levels that we inherited when we came in office have required very careful economic management. And if Senator Sherry is not prepared to acknowledge that it has been careful eco-nomic management that has kept inflation in check and interest rates at a low level then he is not very interested in what took place prior to 1996.

The Labor Party have no alternative economic plan. At the last election, what did they have? A piece of cardboard signed by Mark Latham. That was their economic plan. That is what they were going to put before the Australian people, and that was going to save Australia and keep our economy in good shape. In 2006, what have they got now? Billboards this time; no coherent economic policy at all, but billboards. That is their policy. No-one denies that we are facing serious economic challenges. We have got the worst drought in 100 years, we have still got almost the highest world oil prices in history and domestic inflation has been affected by the cyclone in Queensland.

Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Link to this | Hansard source

Oh, come on! You’ve always got an excuse.

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

I am not just talking about bananas; it had a tremendous effect across all the north of Queensland.

Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Link to this | Hansard source

It was two-thirds of the basket. Two-thirds of the basket went up.

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

Senator Wong, as you live in your comfortable place in Adelaide you have no idea what happens outside of the metropolitan area. You should take a drive out to rural areas.

John Hogg (Queensland, Deputy-President) Share this | Link to this | Hansard source

Senator Ferguson, address your comments to the chair. Senator Wong, stop interjecting.

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

My apologies, Mr Deputy President.

John Hogg (Queensland, Deputy-President) Share this | Link to this | Hansard source

Thank you.

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

Senator Wong should take a drive out into the rural parts of Australia and she would see just how difficult things are in those areas.

Global inflationary pressures have increased in the last 12 months, and that has led to higher interest rates around the world. We have seen terrific volatility on world commodity prices and equity markets, and there are risks to global growth which are associated with the slowdown in housing, particularly in the United States. These challenges require a focused and disciplined approach to economic management, not sloganeering and billboards. And if Senator Sherry wants to come in here and say how devastating it is because we have had three rises in interest rates—still at historically low levels—he ought to remember what his party did to the Australia population with interest rates of 17½ per cent for housing and, as I said, up to 23 and 24 per cent for the ordinary borrower. (Time expired)

Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Link to this | Hansard source

Well, Senator Ferguson, thank you very much for that contribution: yet more hyperbole from the Howard government, showing yet again how out of touch they are with what is actually happening for most Australian families out there. Senator Ferguson says, ‘It is not a surprise; we have had a cyclone,’ and all of that. Is he aware that two-thirds of the goods that are considered by the ANZ when looking at rises in prices have risen? Is he aware that food prices have risen about 10 per cent? This is the sort of increase in costs that Australian families are struggling under, and what do we have? We have Senator Minchin and the Prime Minister here today going on and on about inflation being at historic lows. They say, ‘We’ve had historic lows in inflation over our period in government,’ while families are struggling with an around 10 per cent increase in the cost of food.

When it comes to mortgage rates, let’s remember a couple of things. Let’s remember what interest rates were under John Howard as Treasurer—as Senator Sherry said, in excess of 20 per cent. Those on the other side like to gloss over the fact that under John Howard as Treasurer—

Robert Ray (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

Double digit inflation as well.

Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Link to this | Hansard source

there was double digit inflation and interest rates at 20 per cent. Let’s talk about what families are paying today as a proportion of their household disposable income under this government. On the other side they are all hanging their heads because they know families are paying more now than they ever were under Labor. Nine per cent of their household disposable income is going on mortgage interest repayments. It was six per cent under the Labor government. They are paying more now than they ever did under the previous Labor government, but we still had the Prime Minister before the last election and we still have Senator Minchin today going on about historically low interest rates. The reality is that more is spent by households in terms of disposable income on mortgage interest repayments than there ever was under the previous Labor government. Let’s get that clear.

We saw the Prime Minister at the last election running around the country, happy to take the glory, as he perceives it, for the interest rate position. Interest rates have gone up three times since the Prime Minister and everybody else on the coalition side was running around the country saying: ‘Interest rates are very low. They’ll always be low under a Liberal government.’ Are they taking responsibility for those three interest rate rises? They are happy to take responsibility when they are low. Are they happy now to take responsibility for seven successive interest rate increases, including three since the last election? Will you see the government taking responsibility for that? I doubt it very much. Perhaps even more extraordinary is that we have the Prime Minister now on record trying to soften people up and saying, ‘Maybe we need an interest rate rise because inflation’s so high,’ which seems a very far cry from what he was saying in 2004, when he promised to keep interest rates low.

I want to comment on something that did not seem to get much airplay in the discussion about interest rates in question time today—some of the things that are fuelling the hikes in inflation. There has been a bit of discussion about this. A couple of weeks ago the St George Bank economist analysed, amongst other things, the effect of capacity constraints in the economy on interest rates, on underlying economic growth and on inflation. That showed quite clearly that we have had for a significant period of time capacity constraints in the economy.

What has this government done? Has it invested in the supply side? Has it invested over its 10 years in government in skills and in education and training? Has it invested in infrastructure? The answer is a resounding no. We know what has happened to public investment in education under this government. We know that we have gone backwards by around seven per cent. Most nations in the OECD have gone forwards. We know that infrastructure development has descended to a National Party pork-barrelling exercise under this government. They have no national plan for infrastructure but they are very happy to play electoral politics with it.

The fact is we have had three successive interest rate increases since the Prime Minister ran around the country telling people he would keep interest rates low. We have had seven successive interest rate increases. We have inflation running at 3.9 per cent and we have the Prime Minister softening up the electorate, telling everybody, ‘I think we need an interest rate increase because otherwise inflation’s going to get too high and we’ll have even more.’ That is from a government that has consistently over the decade, until pressed to just recently, failed to strategically invest in supply side policies such as education and training to assure that Australia has a skilled workforce. (Time expired)

Mitch Fifield (Victoria, Liberal Party) Share this | Link to this | Hansard source

I really enjoy this sort of contribution from the Australian Labor Party. It is an interesting part of Labor’s efforts to convince the voting public that they have now joined the economic mainstream. Labor are desperately hoping that after 10 years of opposition the community have forgotten their economic record—that they have forgotten that they bequeathed to the Australian people a $96 billion budget deficit and that in 13 years they delivered nine budget deficits. Over 11 budgets, in contrast, we have delivered nine budget surpluses.

The interesting point is that fiscal deficits put upward pressure on interest rates. Labor now say that they are in favour of balanced budgets. They have belatedly discovered the concept of balanced budgets and they are in favour of them. It is just that they have opposed every single measure designed to get the budget back into balance. Labor say they are in favour of lower interest rates. It is just that they are opposed to the sorts of measures required to help create a low interest rate environment, such as not deficit budgeting, not running up huge government debt. A balanced budget, which Labor say they have now discovered, was actually one of the most significant things putting upward pressure on interest rates.

There are two things we should keep in mind if Labor really want us to believe they have learnt their lesson. The first is that, as any good psychologist will tell you, the best predictor of future behaviour is past behaviour. If you want to know what someone’s behaviour will be in the future, the best indicator, the best predictor, of that is what they have done in the past. What did Labor do in the past? Under Labor mortgage interest rates peaked at 17 per cent and they averaged 12.75 per cent. They were still at 10.5 per cent when Labor left office. In contrast, under this government, they have come down from 10.5 per cent in 1996 to 7.8 per cent now and have averaged 7.17 per cent since we were elected in March 1996.

We should not forget that Labor talk about the costs of households today. Let’s think what the costs of households today would be if interest rates were still at the level they were under Labor. There is an interest saving today for a family of about a thousand dollars each month on the average new mortgage, compared to the interest rates which were in place under Labor. And we should not forget the $7,000 first home buyers grant, which is something that state Labor governments are incredibly keen to try and take credit for.

There is a second thing we have to bear in mind when Labor want us to believe that they have learnt their lesson and that they have changed. The second thing we need to do, if we really want to know what a Labor government would do, is to look at a Labor government. Let us look at a Labor government in office. What do I mean here? Let me provide a contrast. A press release that the Treasurer put out last week, ‘Revised ABS government financial estimates 2006-07’, says:

ABS Government Financial Estimates released today show that the Australian Government is budgeting a fiscal surplus of $10.8 billion in 2006-07.

In contrast, the States and Territories are budgeting a cumulative fiscal deficit of $4.9 billion in 2006-07—

we are budgeting a fiscal surplus of $10.8 billion; state and territory Labor governments, a fiscal deficit of $4.9 billion—

including deficits of over $2.4 billion and $1.7 billion for NSW and Queensland, respectively.

These state and territory Labor governments are themselves putting upward pressure on interest rates by virtue of their deficit budgeting. If we want to know what a state Labor government is doing, we look at these statistics. That gives us a good indication of what a federal Labor government would be like. While the rest of the OECD is forecasting deficits for 2005-06 and 2006-07, this government is still forecast for surpluses.

Unlike the party opposite, we have never claimed to have the RBA in our back pocket. We believe in an independent RBA to deal with inflation. And we have never claimed—contrary to the assertions—that interest rates would never rise under a coalition government. What we have said is that interest rates under a coalition government will be lower always than they would have been under a Labor government. That is our claim. We stand by it. Regardless of the mis-representations, that is the case. (Time expired)

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

I too seek to take note of answers given by Senator Minchin to the Senate today. Can I say, having just listened to Senator Fifield, that those were quite extraordinary figures that he quoted: an obscene $10.85 billion being reaped out of the Australian economy, mostly from the Western Australian minerals boom—not much of it being put back into the infrastructure that is required to sustain that development in the state, but, never mind, that is all right! That $10 billion means that the levels of household debt in Australia are quite extraordinary, record levels of household debts—and an obscene current account deficit. This is all just smoke and mirrors by this government, because the chickens have really come home to roost. Seven consecutive interest rate rises under this Prime Minister’s watch, and there is the likelihood of an eighth one tomorrow. So families all around Australia, and maybe the 1,500 homeowners every week in New South Wales who are starting to have to sacrifice their houses in mortgagee-in-possession sales, might have just two people to blame: the Prime Minister and his Treasurer.

Both the Prime Minister and the Treasurer know what Australians have known for a long time—that they are paying more and more for their mortgages, and they are paying more because of the poor economic management by this government. For seven years this government has been ignoring the warnings of the Reserve Bank. Seven years ago was the first time that the Reserve Bank, in a Statement on monetary policy, started warning the Howard government about the serious skills shortage that existed in our economy. In 1999, the Reserve Bank reported the survey that was undertaken by the Department of Employment and Workplace Relations, saying that we had skills shortages at historically high levels. Then, in 2000, the Governor of the Reserve Bank said that skills shortages had emerged. Six years ago, the Governor of the Reserve Bank was telling this government how serious those skills shortages were becoming. And that is how long the inflationary pressures have been building in the Australian economy because of those actions—or lack of action, as it were—by this government when it comes to skills shortages.

Again, in 2004, in a Statement on monetary policy, the Reserve Bank said: ‘Business surveys suggest a broad range of firms are finding it increasingly difficult to find skilled labour—substantial increases in wages for skilled employees in construction, in the resource sectors and in some business service areas.’ Again, in 2005, in another Statement on monetary policy from the Reserve Bank, there was another warning for this government about skills shortages. Year after year, the government has continued to ignore the warnings of the Reserve Bank about the higher labour costs being imposed on the economy, all due—to quote the Reserve Bank—to skills shortages that have arisen because of this government’s inaction on the training front.

Many Australians are suffering under rising interest rates. As I say, 1,500 homeowners in New South Wales alone every week are having to sacrifice their great Australian dream to a mortgagee-in-possession sale. It is pretty obscene, I have to say. But it is more evidence of the poor economic credentials of this government.

I think it is unacceptable in the year 2006 that there are many residents, for example, in regional areas of New South Wales—and I have to include myself in this—who still are not able to access high-speed ADSL broadband services. These kinds of things are about building a nation and increasing its prosperity. We have the Howard government so obsessed with forcing through the privatisation of Telstra against the wishes of the vast majority of Australians that it has completely ignored the telecommunications needs of our community.

And, of course, on 26 April this year, we had the Minister for Finance and Administration and the Minister for Health and Ageing, like masters of the universe, out there telling us what was going to happen with Medibank Private. At the time, the Minister for Finance and Administration, Senator Minchin, said that the legislation would be introduced in the budget session. What a joke. Every day since April we have been waiting. The sale of Medibank Private has fallen apart in front of this government’s eyes. It has been the most ham-fisted attempt to get anything done that we have seen from the government to date, and there is a pretty high bar here, given some of the incompetent displays that we have seen from this government in recent months. I noticed in the television interview last weekend that, when it was pointed out to him that there had been a certain Treasurer who had had an interest rate at 22 per cent, he had completely lost his memory. Now the government is reduced to blaming bananas or the drought, as we heard from Senator Ferguson. That does not give any confidence to the homeowners who, as I say, every week are being forced into mortgagee-in-possession sales. (Time expired)

Question agreed to.