Mark Dreyfus (Isaacs, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Finance and Deregulation. Why is it necessary to tighten fiscal policy to put downward pressure on interest rates? What is the government’s response to threats to the surplus?

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

Inflation in Australia is currently running at 4.2 per cent, well beyond the Reserve Bank’s target zone, and Australians have suffered 12 interest rate increases in a row. I have no doubt that working people in this country will welcome today’s decision by the Reserve Bank to keep the interest rate on hold. One of the key factors that has been putting upward pressure on interest rates and inflation has been government spending increasing much too rapidly. In fact, for the financial year about to end, the budget that the Rudd government inherited had government spending increasing by over five per cent per annum in real terms, therefore putting significant upward pressure on inflation and interest rates. That is why the government introduced a tough budget, a fiscally strict budget delivering a $22 billion surplus and reducing the rate of increase in government spending down to a little over one per cent in real terms, also thereby ensuring that government spending as a proportion of the total economy will shrink by around one per cent of the economy, one per cent of GDP—the lowest level since 1989-90.

Yesterday the member for North Sydney made a very telling interjection. He described the government’s budget as ‘expansionary’. Do you all agree? Is that the position of the opposition: you describe this as an expansionary budget? Let’s hear from you. Let’s hear what you have actually got to say. The member for North Sydney described the Liberal Party last week as being ‘united in hatred of the Labor Party’, so he tends to run off at the mouth a bit. But the suggestion by the opposition that the government’s budget was expansionary does raise a couple of interesting points. It raises the question: if a 1.1 per cent real increase in spending is expansionary, what does that make a five per cent real increase in 2007-08? How do they describe their final budget, the member for Higgins’s final budget? If ours is expansionary at 1.1, what is theirs at five? Secondly, and more importantly, it raises this question: if the Rudd government’s budget is expansionary, why is the opposition proposing to blow a giant $22 billion hole in the surplus, massively reducing the surplus across the forward estimates, by $4 billion in this financial year and spreading out even further over forthcoming financial years, with not one single savings initiative proposed? In other words, on the one hand they are suggesting it is an expansionary budget, but the answer to Australia’s financial problems, to Australia’s macroeconomic issues, is to actually increase the extent to which it is an expansionary budget.

We have heard the opposition suggest that the inflation problem in Australia is imaginary, that it is fictional, a charade. On the other hand, we have heard the opposition, the member for Wentworth, say that it is actually a serious economic issue, that it is an important challenge. Indeed, on 6 February the member for Wentworth said inflation was ‘running at manageable levels’ when the Rudd government took over responsibility for the economy, and it is not that long ago that the member for Wentworth was standing outside the parliament saying that a 0.25 per cent increase in interest rates was being overdramatised—all from the people who promised to keep interest rates at record lows. So the total picture of the opposition’s position with respect to the government’s budget and its prospective impact on inflation and interest rates is this: there isn’t an inflation problem, but there is; government spending is too high, but the solution is that we should spend even more; the 2008 budget with a one per cent increase in spending was inflationary and irresponsible, but the 2007 budget with a five per cent increase in spending was not inflationary and irresponsible.

The truth is that the opposition are completely, totally, utterly incoherent. They have no fixed position on these fundamentally important issues for the future of the nation’s economy. They are engaging simply in random sniping, desperate searches for relevance, desperate seeking of headlines. A one-line news grab is not an economic policy. The government is getting on with the job of dealing with the complex economic situation facing Australia of defending the living standards of working people in this country and investing for the long-term future, and we will not be diverted in our legislative program to put the budget into effect by the short-term, naked sniping by the opposition that is completely contrary to the interests of economic management and responsibility. We intend to put our budget through the parliament and to ensure that there is a strong surplus to put further downward pressure on inflation and interest rates.