Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Hansard source

The members from Victoria tell me that the Victorian state government is doing the same thing. They have so badly mismanaged their budgets that they are coming up with these madcap ideas—not denied and certainly not ruled out by the Treasurer—to channel money via the federal government to the state governments and keep it off the balance sheet.

Why would the states do this? Because they need the Commonwealth to bail them out. This now gives us the clue about why the government announced last week that it was going into deficit. This has nothing to do with the global financial crisis. This is all about a cover for incompetent state Labor governments. This deficit is not about supporting the Commonwealth budget; this is about supporting state Labor budgets—and it is notable that Western Australia, with a Liberal government, was excluded from discussions on this scheme.

We know that the state governments are saying that their problems with borrowing have not been caused by their mishandling of the budgets, although that is hard to believe, but because of the Commonwealth government’s actions in its bungled unlimited bank guarantee scheme. There is real truth in that. The fact is that the government has not foreseen the dramatic consequences caused by its bungled implementation of an unlimited bank guarantee. The states are having problems raising funds from the market. The states cannot access even short-term credit. But it is yet another consequence of this government’s inability to respond in a considered, responsible way to the effects of the global financial events.

As the economic slowdown around the globe continues, with many advanced economies going into recession, the issue for Australia is whether the Labor government federally by its actions or its inactions has made conditions in this country worse. That is the issue. Just look at one measure. It began its first 12 months in office with a $20 billion surplus. Just 12 months ago this government had a $20 billion surplus. It has no government debt. This is one of the few countries where Commonwealth debt is zero, the $96 billion Keating debt having been paid off in full by then Treasurer Peter Costello in April 2006. So a government that commenced its term with a $20 billion surplus and no debt is now, within 12 months, planning to go into deficit, abandoning all pretence of fiscal discipline and taking on board wacky ideas on behalf of state governments to plunge this country into debt by borrowing money from the Middle East.

A hallmark of this government has been that it has always had a political strategy—it always has a political fix. But it has never had an economic strategy. It has never had a clear economic plan for the direction in which it wishes to take this country. And, given that other economies around the world are going into recession, it is essential that this government sets out for all Australians its plan for the future. How does it intend to manage our economy in a concerted, reasonable way that shows great judgement and wisdom and calm and reasoned strategies?

Let us take a couple of examples of how this government has responded in such a political way. Take its war on inflation earlier this year. This—first, last and always—was a political strategy. This was spin doctoring at its best. It was not about inflation; it was about trashing the reputation of the Howard-Costello government. Having inherited the best economic and budgetary conditions of virtually any incoming government since Federation, the Prime Minister decided that his government had to trash the economic reputation of the previous government. It searched for an economic indicator that was not going in the right direction. It seized upon inflation, which at that point was just outside the Reserve Bank’s band, and then used reckless language to describe what was just a routine matter for governments—that is, keeping inflation within the band. It seized upon it and used reckless language in talking about an inflation monster or inflation genie being out of the bottle—telling Australia that inflation was out of control. It is worth noting, of course, that inflation was significantly lower in November 2007 than when the coalition came to government in 1996.

In early 2008, the Treasurer infamously said on the day before a Reserve Bank meeting that the inflation genie was out of the bottle, that inflation was out of control. What extraordinary pressure this government put on the Reserve Bank! The Prime Minister, in declaring a war on inflation, described it as the No. 1 challenge facing this country. And with the Prime Minister and the Treasurer egging them on, the Reserve Bank was left with little choice but to raise interest rates, which it did twice.

Why this has been so bad for the country is that, at the very time the Treasurer and the Prime Minister were using political fixes to focus on inflation, drive up interest rates and tighten monetary policy, the rest of the world was focusing on the fallout from the United States subprime crisis—and the opposition, when in government, warned Australia about the consequences of the subprime crisis. The rest of the world was easing monetary policy. The rest of the world was looking to fiscal stimulus packages to stimulate their economies. It was in February 2008 that the United States introduced an economic fiscal stimulus package into the US Congress—a $150 billion package designed to stimulate the economy—and the US Federal Reserve was easing interest rates and monetary policy. But what was the Australian government doing? Precisely the opposite, precisely the wrong thing: tightening monetary policy, pushing up interest rates. And do you know what impact that has had? The national accounts yesterday said it all. The full impact of those interest rate rises is coming home to roost now, and we are seeing slowing in the Australian economy.

When it was almost too late, the Reserve Bank started loosening monetary policy and we have seen a three per cent drop in the cash rate in four months—a spectacular bringing down of interest rates in a very short time. But that is because we had been heading in the wrong direction. It was the wrong call by the government, and the government should admit that now because there are people who, unfortunately, relied on the Treasurer, relied on the Prime Minister and believed the inflation challenge was the No. 1 enemy of this country and fixed their mortgage rates at those higher rates. These people are now not getting the benefit of the three per cent cash rate cut that has come into effect as a result of the easing of monetary policy. These people are paying thousands of dollars a year more than they would have otherwise paid had this government not used a political fix instead of using responsible economic management of the budget. There is no point in the government saying, ‘Tell them to go and swap banks,’ in the same manner as the Treasurer said to the 270,000 Australians whose funds are frozen in mortgage accounts around Australia because of the bungled unlimited bank deposit guarantee. There is no point saying, ‘Go and swap your bank account,’ because they will be charged thousands of dollars to move from a fixed to a variable rate.

These are the sorts of consequences that flow from a government that is prepared to put politics above responsible economic management. That brings us full circle, back to the question of the ‘Kevlani’ loan affair. The government, having mismanaged the economy, is driving this country into debt. (Time expired)

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