Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Hansard source

Thank you, Senator Campbell, for raising what is a very, very important issue—the Labor government’s fight against inflation. At the present time there are a number of significant economic challenges from inflationary pressures, domestic capacity constraints and global economic uncertainty. At the present time the underlying inflation rate is running at approximately 3.6 per cent. The Reserve Bank independently determines interest rates and its band for inflation is between two and three per cent. So the current underlying inflation rate of approximately 3.6 per cent is clearly outside that band. It is the legacy that we have been left by the former Liberal government. What we have now is a level of inflation that is the highest rate in 16 years. And higher inflation puts upward pressure on interest rates. That is why this Labor government is determined to tackle this issue. Higher inflation and higher interest rates eat into family budgets; they hurt Australian working families.

The Treasurer, the leader of the government—the Prime Minister, Mr Kevin Rudd—and Lindsay Tanner in particular have put forward a vigorous program of fiscal restraint. At the same time that inflation was escalating, the 2007-08 Mid-Year Economic and Fiscal Outlook indicated that real government expenditure was increasing at a rate of about 4.5 per cent. That high rate of real spending is not sustainable, and the new Labor government, having already committed to re-establishing fiscal discipline, has identified savings of some $10 billion over the forward estimates. The Labor government is committed to being fiscally conservative. We reiterated that over and over again before the election. That was a promise made: this will be a fiscally conservative Labor government.

In addition to the $10 billion in savings that I have referred to, we are reordering expenditure priorities in order to reduce the inflationary pressures that we currently face. The government aims to deliver a budget surplus of at least 1.5 per cent of gross domestic product in 2008-09. Contrast that with the former Liberal government: their outcome was estimated to be at one per cent of GDP. We are aiming to deliver a budget surplus of 1.5 per cent of GDP in 2008-09. We intend to go about this with a rigorous and disciplined process. We will be identifying a range of savings to reach that 1.5 per cent target. It is critical to bring inflation under control, and significant fiscal restraint is an important element in bringing inflation under control.

Already the finance minister has identified some $642 million in savings. He announced those last week. There will be additional savings announced on budget night. I reiterate that one of the essential elements is to tackle the legacy of higher inflation, which we have been left by the Liberal government, at a 16-year high. We are determined to tackle this because higher inflation means higher interest rates and that hurts Australian working families. We are determined to tackle this issue by being fiscally conservative, unlike the opposition former government.