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, representing the Treasurer. I refer to last week’s decision by the Reserve Bank to lift the interest rate by 25 basis points to 5.75 per cent. Is the minister aware that a family with an average mortgage of $226,000 will have to find an extra $73 a month to pay for the two interest rate increases the government promised at the last election would not happen? According to the statement by the Reserve Bank, wasn’t the interest rate increase in part a result of what it described as ‘rather limited spare capacity’? Why has the government neglected nation-building investment in infrastructure? Hasn’t that failure led to greater upward pressure on interest rates?

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

What I know is that, under Labor, interest rates hit a record 17 per cent. Under Labor, interest rates averaged 12.75 per cent. When we came into office, interest rates were 10½ per cent. Under our government, interest rates have consistently been lower than they were under the former Labor government, who ran massive budget deficits, built up the debts of this country and squeezed savings in this country. This put pressure on interest rates and led to the collapse of businesses all over the country and unemployment in the hundreds of thousands. That was the record of the Labor government.

Our whole strategy through our fiscal policy is to ensure that we put no undue pressure on interest rates as a result of our management of the economy and our management of public finances. The record speaks for itself. Interest rates have been consistently lower under our government than they ever were under the former Labor government. We are proud of that record, and that record will continue.

It is of course true that the Reserve Bank, by virtue of our instrument when we came into office, is an independent entity and runs monetary policy independently. It has done a superb job and is widely regarded throughout the world for its conduct of monetary policy in this country. Last week, the Reserve Bank raised the official rate by one-quarter of one per cent, taking account of the strength of the global economy and the impact of that on the Australian economy. Australia, as a commodity supplier, is benefiting enormously from the very strong global economy, particularly the economies of China and India, and that is of course feeding through to the domestic economy, which is running at a strong rate.

It is a fact that the Reserve Bank thought it best to—what you might colloquially describe as—‘touch the brakes’ to ensure that the economy did not overheat and that we did not exceed the two to three per cent band on underlying inflation. Our job in the budget ahead of us tonight is to make sure that there is nothing in that budget that puts any further undue pressure on interest rates. Indeed, the Reserve Bank has made it abundantly clear that there is nothing in relation to fiscal policy that is having an effect on its conduct of monetary policy.

As to so-called ‘nation building’, we know that the Labor Party wants to rort the Future Fund by using it for its favourite pet projects and as a slush fund to buy its way back into office. We will not allow the Future Fund to be used like that. Consistent with our responsibilities as the federal government—not a state government—we have invested significantly in road and rail and infrastructure. I ask the opposition to have regard to the budget tonight, where they may see further initiatives in that regard. We have a major AusLink program which has led to a very big increase in our investment in road and rail, in particular, in this country to improve our transport networks. We have invested substantially in skills, innovation and education. We believe we are playing our part in ensuring the productive capacity of this economy and we are ensuring that whatever we do puts no undue pressure on interest rates.

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. Given the history lesson, perhaps the minister would like to remind us about the peak of interest rates when the current Prime Minister was last Treasurer—reaching over 21 per cent, as I understand. Referring to the interest rate rise the government promised at the last election would not happen, didn’t the Reserve Bank also point out that another contributing factor was that ‘suitable labour is scarce’? Why has the government neglected significant investment in skills and training—resulting in, for example, the shortfall of 300,000 places in TAFE since 1999 and a shortfall of 100,000 university places since 2003?

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

It is true that there are some skills shortages in some parts of the economy. That is because the economy is running so strongly that it is putting demand on labour. It is because so many people are in employment and unemployment is so low. There was never a skills shortage problem when Labor was in office, because unemployment was above 10 per cent. Of course there were no skills shortages when Labor was in office. There are now, because of the strength of our economy and low unemployment.