David Bushby (Tasmania, Liberal Party) Share this | Hansard source

I look forward to something better from Senator Bilyk because so far we have not heard anything from any of the government senators that is actually in the least bit relevant to the matter we are discussing today. Senator Furner went into great detail about how the stimulus package which the government put in place was swift, and yet here we are, two years later, and a large percentage of it, 30 to 40 per cent of it, is still being rolled out. If the stimulus is what saved Australia’s economy, then why is it still being rolled out? And, if it needed to spend as much money as the government says it needed to spend to do that, why do we still have a large percentage of it that has not been spent? Quite clearly, the large part of it that has not been spent yet is not contributing to the stimulus and did not contribute in any shape or form to our economic performance over the last two years.

And how does that fit into Treasury’s requirement of the ‘three T’s: that any stimulus package should be temporary, timely and targeted? Is the stimulus package still temporary when two years later there is still 30 to 40 per cent of it to be rolled out? How temporary is that? Is it timely? Any crisis that did exist in Australia to the extent that the North Atlantic financial crisis did impact on us is well past now; why do we still need to be rolling out a stimulus?

‘Targeted’? Well, Senator Furner himself talked about how it had promoted local industry. In my home state of Tasmania, Tascot Templeton is the only remaining carpet producer of its type in the country. It specialises in making carpets of the type that you put in parliament—the carpet in this chamber now is Tascot Templeton carpet—and in places like schools and other institutions. It was perfect carpet for it, but, no, the Building the Education Revolution program did not use their carpet and now they will be closing before Christmas.

In general, Senator Furner spent most of his time highlighting how the economy is close to capacity. We could argue all day as to why the Australian economy actually came out of the North Atlantic financial crisis in the shape that it did. There are a number of arguments but I suspect China’s stimulus had a lot more to do with it than the Australian stimulus. This is the problem: Senator Furner himself and Senator Hutchins admitted that we are near capacity. This comes down to the nub of what we are talking about today. If we are near capacity, why are we still stimulating?

I want to take the trouble to repeat the quote that Senator Ryan mentioned, which was:

Tighter fiscal policy and measures to boost labour force participation and productivity, could play a useful role in complementing monetary policy, reducing the size of the required increase in interest rates and the exchange rate.

So said the Department of Treasury and Finance in its incoming advice to this government, in the document commonly known as the red book. What Treasury did in that statement was to highlight a couple of issues it sees within the control of government that, if addressed, could reduce the size of required increases in interest rates and the exchange rate.

Surely, given the massive increases in the cost of living faced by all Australians, particularly in the area of government-supplied or government-controlled goods and services like water, energy and rates, mainly under state Labor governments, the last thing that this government should be doing is making decisions that add to the cost of living for Australians or, just as bad, ignoring advice to take action that would minimise pressures that would add to costs for Australians—in this case, the cost of servicing a home loan or, if you are a small business, your small business loan.

So what are these two measures that Treasury recommend the government can take action on to reduce the size of required increases in interest rates and the exchange rate? The first is tighter fiscal policy, and this means better spending control by government. It means cutting back spending and working a little harder to ensure that spending is only on that absolutely required rather than for looser political reasons—or, to put it more bluntly, stopping the wasteful and reckless spending of this government. The second measure is to boost labour force participation—things like providing better incentives for people to get off various forms of government assistance or welfare and to get into the workforce—which would involve a mixture of carrot-and-stick measures.

But the subject of the MPI today is how the Gillard government’s mismanagement of its budget and fiscal policy is impacting on interest rate pressures, so I will focus on the first of the recommendations of Treasury. In doing so, I would like to refer to another quote from the red book, one that followed on from that with which I opened my comments:

...there is also scope for the government to improve the quality of its own spending programs in a way that takes pressure off interest rates and the exchange rate.

So here we have not just a polite suggestion that tighter fiscal policy can reduce the size of required interest rates but a comment that perhaps the quality of the government’s spending needs a little work. That is, that it maybe is not of the best quality and—just perhaps—the government should think about what it is spending its money on and maybe rethink a little or even a lot of it. Of course, Treasury in its red book has to be somewhat circumspect. It cannot just come out and blatantly slam the government for choosing to continue its wanton spending on stimulus for an economy that is nearing full capacity and for which stimulus is the last thing it needs. It cannot come out and say, ‘Your fiscal settings were set for a dire economic outcome that never actually transpired; so stop,’ or even, ‘Your fiscal settings are emergency settings and the emergency has passed’—if it ever actually applied in Australia. It just cannot come out and say that. No, Treasury in these documents has to be far more polite and responsible. So the comment of ‘scope exists to improve the quality of government spending’ is fairly direct and telling. Treasury clearly has issues with the government’s spending—and for good reason. Dr Henry in the June 2008 estimates hearing stated:

... the budget is estimated to have a mildly or moderately contractionary effect on the economy through the increase in the size of the budget surplus, and through that higher budget surplus or moderately contractionary effect on the economy that comes with that higher budget surplus there would be downward pressure exerted on inflation.

At the October 2010 estimates, just last week, I asked Dr Henry about these comments in the context of the current challenges, as outlined in the red book and elsewhere, and whether the same principle applies now. He said:

In an economy close to full capacity—

and, as we have heard from Senator Furner and Senator Hutchins, that is where we are at now—

a tightening of fiscal policy would mean that there is less work left to be done by monetary policy, and that would mean, other things being equal, that interest rates would be somewhat lower.

A clearer statement of how things work could not be made. (Time expired)