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

My question is directed to the Treasurer. Would the Treasurer outline to the House the basis for the conduct of monetary policy which was instituted 10 years ago? Has the statement on the conduct of monetary policy contributed to Australia’s economic success over the last 10 years?

Peter Costello (Higgins, Liberal Party, Treasurer) Share this | Link to this | Hansard source

I thank Mr Causley, the honourable member for Page, for his question. It was 10 years ago yesterday that the government set Australia’s monetary policy in place. It was set in place by a statement on the conduct of monetary policy which was exchanged between the Governor of the Reserve Bank and me. The statement on the conduct of monetary policy set the objective of keeping underlying inflation between two and three per cent on average over the cycle. That agreement was entered into by an exchange of letters on 14 August 1996—my letter to the governor inviting him to subscribe to that statement and his letter to me confirming that he did fully understand and agree to that proposal. Since the statement on the conduct of monetary policy has been in place over the last 10 years, inflation has averaged 2.6 per cent compared with 4.5 per cent in the preceding 10 years; GDP growth has averaged 3.6 per cent per year, and, as the OECD notes, we have now surpassed the living standards of all of the G7 with the exception of the United States; and sustained economic growth has seen employment grow by an average annual rate of two per cent. So I think we can say that the conduct of monetary policy over the last 10 years, in association with the government’s economic policy, has been a big part of the nation’s success. Can I confirm for the record that the statement on monetary policy was entered into not between me and the member for Groom but between me and Mr Ian Macfarlane, the Governor of the Reserve Bank.

Some people will think that this was just pretty standard, that there was nothing new about it, but I thought that on the 10-year anniversary I should remind the House that Labor not only opposed the statement on the conduct of monetary policy but threatened to sue the government in the High Court for entering into it. I have a press release here dated 13 August 1996 from the Leader of the Opposition, Mr Beazley, headed ‘Labor to seek legal advice on Costello bank letter plan’. It says:

The Federal Opposition today decided to seek legal advice on Treasurer Peter Costello’s plan to require the next Reserve Bank Governor to sign a written “inflation first” pledge.

…         …         …

“The Federal Opposition will be treating this issue seriously and will not allow the Government to subvert the Reserve Bank’s legislative Charter ...

The quote continues:

“That is why we will be seeking further legal opinion on the legality of the Costello proposal, and the option of the Federal Opposition going to the High Court to force the Government to abide by all of the provisions of the RBA Act.”

Ten years after that statement on the conduct of monetary policy, no sane Australian would say that they would change it. Indeed, no sane Australian would now say it should not have been entered into. But on 13 August 1996 not only did the Labor Party oppose this forward-looking policy but they threatened to sue the government to prevent it being put in place. There are some people that wonder why Labor have no economic credibility. Labor have no economic credibility because they are led by the member for Brand, Mr Beazley—and exhibit A in relation to the economic incompetence of the member for Brand is his press release of 13 August 1996 opposing probably the best monetary policy that Australia has had, and probably the most successful monetary policy of any country in the world. It has been successful because nobody listened to him in relation to it. I table exhibit A on the economic incompetence of the Leader of the Opposition.