Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

My question is to Senator Minchin, the Minister representing the Treasurer. I refer to today’s national accounts figures, which show household savings was at negative 3.5 per cent for the 2004-05 calendar year. Isn’t this the third year in a row in which household savings have been negative—in other words, Australians are spending more than they are saving? Is the minister aware that household savings were positive, at 6.4 per cent, in 1996 and 1997? When does the Liberal government intend to do anything to reverse the drastic decline in household savings under its watch or will it just shrug its shoulders and be lazy and complacent like it has done in response to our ballooning foreign debt?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

This is a question which the ALP has raised on numerous occasions. We have responded to it on numerous occasions and we will respond yet again. The facts in relation to household savings are as Senator Sherry describes, but one must look behind the veil to determine what is really going on here. What the Labor Party is ignoring is that the extent to which households feel in a position to borrow against their assets is nothing more than a reflection of the extraordinary confidence which Australians feel in the state of the Australian economy and in their own financial positions. This is a sign of the extent to which Australians understand that they are experiencing one of the most extraordinary periods of growth that Australia has ever had and that, with the extraordinary combination of strong growth, low inflation and low interest rates, they are in a position to be more heavily geared. That is all that is going on here. We actually live in a free society and a free economy where Australians are free to borrow depending on their assessment of the extent to which they are in a position and have the capacity to do so.

In relation to the signs that have emerged in the national accounts, there are, I must say, early signs that households are beginning to rebuild those savings. Household savings rose modestly to negative two per cent in the December quarter after being at negative 2½ per cent in the September quarter. But I would continue to make the point, as we have, that household balance sheets remain particularly strong. The household balance sheets show that, for every dollar of debt, households have almost $2 in financial assets and close to $6 in total assets. So the balance sheet position on households remains strong. That is why they have the confidence to make the borrowings that they have. The household sector as a whole is not having difficulty servicing its debt, with indicators of financial stress such as loans in arrears and personal bankruptcy remaining at relatively low levels. The RBA noted in its February statement on monetary policy that ‘Although there is still little sign of household financial distress in the loan arrears data, the rising interest burden may be one reason for the moderation in the consumption growth.’ That is the position of the RBA.

We as a government have always said that, while we do not have a command economy and Australians do, blessedly, live in a very free country, people should be conscious of ensuring that they do not get themselves into difficulty and they should not exceed their capacity to repay their debts. But the fact is that households are acting rationally in a situation where there is strong growth, low unemployment, low inflation and low interest rates. With the extraordinary confidence they have after 14 years of continuous growth, they continue to invest in their futures, as I said, against a net tangible asset backing. We remain confident about the position of households. It is, however, one reason why it is vital that governments around this country continue to contribute to savings. That is why we put a great emphasis on continuing to run reasonably good surpluses at a time like this. We implore the states to continue to contribute to savings and not run a risk, as states like South Australia and New South Wales are, by running down their budgets.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. We can only assume from that extraordinarily complacent response that the minister does believe that ongoing negative household savings is actually a good thing for the Australian economy. Given that household savings have collapsed and the negative household savings rate is increasing year by year, doesn’t this mean that Australia becomes more and more dependent on importing greater and greater levels of foreign capital to underwrite its trading debt and its national debt, which now stands at a record high of $473 billion? In turn, doesn’t this leave Australia more vulnerable to economic shocks? When is the government going to end its complacent and lazy attitude in respect of the collapse of private household savings in this country?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

I do not think that the Labor Party have any understanding of how a private sector capitalist economy actually works. These are the decisions made by millions of ordinary Australians operating on their own without direction from a command government. What is Senator Sherry going to do? Is he going to issue a law saying that you cannot borrow? Is he going to whack up interest rates, like his predecessors did in the last government, to stop Australians from borrowing, drive thousands of people out of business and put unemployment through the roof? That is the Labor Party answer—to destroy the economy like they did in the early 1990s.