Wayne Swan (Lilley, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

My question is to the Treasurer. Why does the Treasurer now acknowledge that skilled labour shortages are putting upward pressure on inflation and interest rates when back in May this year he dismissed the link? He said:

It really, you know, it’s totally unrelated to monetary policy.

Hasn’t the government been asleep at the wheel when it comes to inflationary pressures in the economy? Haven’t families paid the price, with seven back-to-back interest rate rises?

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

This government put in place monetary policy and inflation targeting and it was totally opposed by the Labor Party, which threatened to sue on the grounds that it was illegal. I do notice that the Labor Party has given up that policy and has not yet served the writ that it promised 10 years ago. The monetary policy that we have put in place has been very successful, with inflation averaging 2.6 per cent over the course of the last 10 years. Indeed, it has been so successful that the Labor Party now says that it wants to adopt coalition policy on monetary policy, which we welcome.

In relation to future prospects for inflation, we believe we can continue to meet our targeting notwithstanding the fact that the Australian economy is experiencing unemployment lower than it has had for the last 30 years. But to do that we have to make sure that wage settlements from profitable parts of the economy are not transported into unprofitable parts of the economy. There is nothing wrong with an increase in wages in a profitable mining company where it is meeting a world price and boosting supplies. There is nothing wrong with that at all. In fact, the employees have the right to share in the profitability.

What is wrong is if you try to take a wage settlement out of a mining company—say, for an electrician or something—and apply it to a manufacturing company in one of the big cities, where there is not such an opportunity for profit. If you do that, you harm profitability and you harm employment. This is what happened with the breakout under the metal award in 1981. It is what happened in relation to the inflationary pressures that were in the economy in the late 1980s which led to extremely high interest rates. Under a much better industrial relations system we can handle that. We can maintain our targets in relation to inflation and we can maintain the Australian economy in a much stronger position than it has been in in the last 30 years.