Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

At the outset, can I welcome the relief provided to mortgage holders today by the Reserve Bank. It is modest relief, but it is relief nonetheless. I welcome the relief not only as the Assistant Treasurer but also as the member for Prospect. As a local member, I have seen the problems caused by 12 interest rate increases in a row, as all honourable members have. Western Sydney MPs have seen foreclosure rates rise to record levels, and MPs from around the country have seen cost-of-living pressures go through the roof, partly as a result of these interest rate increases. So there is no doubt that the decision today is welcomed.

When you have cost-of-living and inflation pressures it is incumbent on the government of the day to do everything possible to put downward pressure on interest rates and inflation. The main mechanism that we have at our disposal is budgetary policy. That is why getting public spending under control has been such a priority for this government. That is why increasing the size of the budget surplus has been so important to this government. That is why getting the previous government’s out-of-control public spending back under control has been so important to us. As a Western Sydney MP I hold the view particularly vigorously, as do other Western Sydney MPs and other MPs representing large numbers of mortgage payers, that the No. 1 fiscal responsibility of a government in 2008 is to put downward pressure on interest rates.

But it is also, of course, important to invest for the future. If you look at the Reserve Bank decisions on interest rates over recent years you see a common theme. You see that our spending as a nation has outrun our capacity and that over the medium to long term more investment has been needed to improve our economic capacity—investment in infrastructure and investment in skills. This investment is necessary to improve our productivity and increase our competitiveness, but it is also important so that we can continue to grow the economy without bumping up against these inflationary pressures at every turn. Unless you invest in infrastructure and skills, you cannot have the type of growth in demand that we have been experiencing without putting upward pressure on inflation and interest rates. The Reserve Bank even today said this:

Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the board has been seeking to restrain demand in order to reduce inflation over time.

Some of the capacity constraints have been private sector and some have been public. But, unless you can increase the public sector investment, unless you can increase our capacity to grow as a nation, we are going to continue to put this pressure on the Reserve Bank. That is why investment for the long term has been the other priority of this government—investment in infrastructure and investment in skills—to fix 12 years of neglect and set us up for the future. That is why those two key priorities have been so important to put downward pressure on inflation.

Can you imagine what the Reserve Bank’s situation would be if we had not done that? Can you imagine the pressure they would be under if we had not reduced public spending to its lowest proportion as a percentage of GDP since 1989-90—if that room had not been created, if we had not done some of the heavy lifting for the Reserve Bank and brought budgetary policy back under control, which the Governor of the Reserve Bank has said publicly has been helpful?

Of course, what we see in this House and in this MPI is the contest of ideas on the economy. We should have the contest of the different economic narratives. We should have the great debate about ideas. On this side, we see those two priorities, but it is difficult to have that debate because on that side we simply see confusion. We simply see this blancmange of ideas and no coherent narrative; we see positions taken and overturned, not only in the same interview but also in the same sentence, by the Leader of the Opposition.

The contribution we have just heard from the shadow Treasurer is almost enough to make me feel sorry for him. You can hear the frustration in his voice at the interest rate reduction. You can hear the disappointment in his voice at the relief given to the Australian people by the Reserve Bank today, as he casts around for a logical and coherent economic argument to make. It is something his leader cannot do and it is something he cannot do, probably because they no longer know what they stand for. They no longer know what they believe in. Are they for higher interest rates or lower interest rates? Are they for higher inflation or lower inflation? Are they for tackling inflation or not? We just do not know anymore. We used to know what the Liberal Party stood for. We did not agree with it, but at least we knew what they stood for. It is hard to agree or disagree with them because they cannot take one position which lasts for more than 24 hours, let alone more than one interview. It is hard to run an economic debate with the other side when they move around so much. Nevertheless, we will try.

The only thing consistent about the opposition’s economic commentary is its inconsistency. The only thing consistent about their approach is that they do not know what they stand for. The only thing consistent is that they do not know anymore whether they want interest rates to be lower or higher. No wonder the member for Higgins is trying so hard to stop the member for Wentworth from becoming the Leader of the Liberal Party. From what we read, it is because he does not think the member for Wentworth can hold down a consistent economic argument. I find myself in the invidious position of agreeing with the member for Higgins—it is a very rare event, but nevertheless I find myself there.

Let us look at the criticisms of the government from the shadow Treasurer and the Leader of the Opposition. We heard some more just then. We have heard the shadow Treasurer time and time again say that the reason for interest rate increases has been that the Treasurer dared to point out that inflationary pressures in this country are a problem. Good old ostrich economics. The Leader of the Opposition even upped the hyperbole just then and said it was to the Treasurer’s eternal shame. The hyperbole went up a notch. Good old ostrich economics is back: stop talking about inflation and the problem will go away. That is economic theory No. 1 from the shadow Treasurer: just do not talk about it and then the Reserve Bank will not have to increase interest rates. His attitude is: ‘If only the Treasurer would stop talking about inflation then everything would be okay.’ If he were the Treasurer this would be his approach: speak no evil, do not talk about inflation and we will not put any pressure on the Reserve Bank, despite the fact that the Reserve Bank has been out there saying that inflation is a problem. I can picture the shadow Treasurer in his office tonight ringing the Governor of the Reserve Bank and saying, ‘Please don’t talk about inflation!’ Imagine him ringing all the board members of the Reserve Bank and saying, ‘You’re putting upward pressure on inflation by increasing inflationary expectations.’ That is the logical conclusion of the argument that he puts to the House.

Yesterday and today we have seen this economic inconsistency reach new heights. Yesterday we saw the Leader of the Opposition, full of courage and truck-stop coffee, giving orders to the Governor of the Reserve Bank, saying, ‘You must reduce interest rates by 50 basis points.’ Then a journalist had the presence of mind to say to the alternative Prime Minister, ‘Is this the approach you’d take if you were Prime Minister, what you’re calling on the Reserve Bank to do now?’ The Leader of the Opposition looked like a rabbit stuck in the headlights and said, ‘No. I wouldn’t be as irresponsible as to do that if I were Prime Minister. I’m only going to be as irresponsible as that if I am Leader of the Opposition.’ That was the Leader of the Opposition’s approach yesterday. The emperor has no clothes!

The shadow Treasurer has reached new heights today. He said this this morning—and this is a long one but a good one:

If rates come down today, and everyone expects they will, it will be because the economy is slowing.

…            …            …

The price we are paying for a cut in interest rates is a very, very heavy one.

What they have done is shatter confidence. A credit crisis, a credit squeeze is a collapse in confidence.

That tells us two things about the shadow Treasurer’s thinking today. The first is that he thinks that the global credit crunch is as a result of the actions of the Prime Minister and the Treasurer. We have heard him argue in the House that the global decline in consumer confidence is as a result of the actions of this government. Now he has taken it one step further and said that the global credit crunch is as a result of the actions of this government—which comes as a great surprise to Hank Paulson and Ben Bernanke in the United States, I am sure, but that is the argument seriously put by the shadow Treasurer.

But much more concerning is the shadow Treasurer’s approach to inflation and interest rates. He has been arguing for months that inflation is not such a problem. The Leader of the Opposition has said it is a charade. We have heard the member for North Sydney say, ‘Inflation is only a serious problem when it reaches Weimar levels.’ Presumably he means 1,000 per cent.

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