Michael Danby (Melbourne Ports, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Treasurer. Can the Treasurer update the House on the state of the Australian economy and any challenges to our future national prosperity?

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

I thank the member for his question. The government is fundamentally optimistic about the future of the Australian economy. We do recognise that unemployment is low. We do recognise that we are in our 17th year of continuous economic growth. As I move around Australia talking to people in the board rooms, talking to people in the lunch rooms, talking to CEOs, talking to regulators or talking to working families, two things are very clear to me: No. 1 is that there is an increasingly uncertain global outlook—and we are certainly not immune from the fallout of that uncertain global outlook; and No. 2 is that we face an extended level of inflation. We face, for a period to come, high inflation. That is what the Reserve Bank’s statement on monetary policy earlier in the week was all about.

The fact is that inflation will be elevated above the Reserve Bank’s target band for at least another two years. We had the December quarter figures from the bureau back in January, figures which put the level of underlying inflation at a 16-year high. So there is no doubt that, in addition to the problems internationally, which will produce a slow down internationally and will have a flow-on effect to this country, we have an elevated level of domestic inflation, which is at a 16-year high, and the Reserve Bank is now saying that it will be above the target band for at least another two years.

That is a very sobering assessment of the Australian economy because it points to a number of things. It points to the fact that, as a nation, we have to do something to bring inflation down if we want to avoid further interest rate rises. There were 10 interest rate rises on the trot under the previous government—11 in total. This country has faced seven interest rate rises in the last three years. Those interest rate rises have been derived principally from an elevated level of inflation, which has been caused by a number of factors. The first factor is the one that the Minister for Infrastructure, Transport, Regional Development and Local Government talked about before—capacity constraints in this economy, particularly infrastructure capacity constraints and infrastructure bottlenecks. It is true that over a three-year period the previous government received 20 warnings about the impact of capacity constraints relating to infrastructure bottlenecks. The elevated level of inflation was caused not just by what is going on in infrastructure but also by the inattention of the former government and its complacent approach to skills formation—the complacent approach of the opposition to skills formation over a prolonged period of time. Lastly, it was caused by reckless spending by the previous government over a period of time. All of that has produced an elevated level of inflation which must be dealt with. This is why the Rudd government began work on day 1—on 25 November last year—to tackle this inflation problem. We began work on day 1.

Members opposite behave as if somehow inflation magically just appeared on Monday morning, at 9 o’clock, on 26 November last year. Well, it didn’t! Inflation has been rising for a long period of time because of the inattention and complacency of the previous government to capacity constraints in the economy—to skills, to infrastructure—and also because they engaged in reckless spending. This document from the Reserve Bank shows conclusively that the complacency of the previous government has led to the inflation threat that this government now must deal with. And deal with it we will. This is why the Prime Minister announced his five-point plan in Perth a couple of weeks ago. It is very important that we as a nation come together and deal with this inflationary threat. We on this side of the House have accepted responsibility for fixing it. I just wish those on the other side of the House would accept some responsibility for creating it.