Kerry O'Brien (Tasmania, Australian Labor Party, Shadow Minister for Transport) Share this | Link to this | Hansard source

My question is to Senator Minchin, the Minister for Finance and Administration. Given the minister’s recent enthusiasm for quoting Labor ministers from the mid-1990s, does he recall saying on 29 August 1995, when foreign debt was $167 billion, that it was:

... just mind-boggling and beyond the comprehension ... of most Australians.

Didn’t the minister also say:

... foreign debt does increase interest rates. That is without question the case.

Can the minister now confirm that Australia’s foreign debt is $500 billion? Didn’t foreign debt grow by 14 per cent last year and 10 per cent the year before? Given the minister’s view that it is without question that foreign debt increases interest rates, can he confirm that the $500 billion of foreign debt under the Howard government has been a direct contributor to the eight—yes, eight—successive interest rate hikes experienced by Australian families?

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

I can confirm what the Reserve Bank said about the causes of the latest rise in interest rates. The Reserve Bank said:

The world economy has grown strongly in 2006 and is generally expected to grow at an above-average pace … The global expansion has contributed to high levels of commodity prices … Domestic demand has been expanding at a relatively strong pace …

I look through all this and I cannot find any reference to the size of Australia’s foreign debt. There is absolutely no statement with a reference to the foreign debt of Australia having had any impact on the rise in interest rates yesterday. So I dismiss that assertion.

I am interested that the Labor Party wants to spend its time researching what I said when we were in opposition from 1993 to 1996, when I regrettably had to sit on that side of the chamber and ask questions of government ministers, who could not answer them at that stage, of course. The great difference between this government and your government is that your government, the Labor government, ran massive budget deficits at the same time as this country was running a foreign debt. The problem for the United States, which we have been honest enough to point out, is the combination of significant current account deficits and significant budget deficits. It is that combination which threatens an economy and threatens to put pressure on interest rates—

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

Senator Sherry interjecting—

Paul Calvert (President) Share this | Link to this | Hansard source

Senator Sherry, shouting across the chamber is disorderly.

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

because, to the extent that the government, by borrowing, is contributing to one’s foreign account debt, you do put pressure on domestic interest rates. The great difference between us and the Labor Party is that we have corrected the government’s position. We have paid off the $96 billion in debt. We have returned the budget to surplus from the $10 billion annual deficit that we inherited from the Labor Party. So, instead of paying $8 billion in interest every year as we did under the Labor government—

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

Senator Sherry interjecting—

Paul Calvert (President) Share this | Link to this | Hansard source

Senator Sherry, I have continually asked you to stop shouting across the chamber. I warn you.

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

our interest payments are effectively zero because there is no deficit. The great difference between the two periods that you referred to—then and now—is the complete eradication of government debt, the complete eradication of government deficits. So we have a situation where the current account deficit is a function of decisions made in the private sector entirely, and the size of the current account deficit and the interest payments we make are a function largely of (a) banks borrowing to finance housing loans and (b) investment by the private sector.

To the extent that the borrowings are by the private sector for productive investment, that is good for the economy. The investment is what will produce future income. It is the investment that you see through the current account deficit that is enabling Australia to meet the inexorable resource demands of China in particular and India to a lesser extent that our great private sector mining industry is now meeting. That is why you have a current account deficit at the moment. So you have to look at the structural composition of the current account deficit, note that it is a function of the investment borrowing by the private sector that is contributing to the long-term strength of this economy and note the fact that we have completely eradicated government debt and deficits in this country.

Kerry O'Brien (Tasmania, Australian Labor Party, Shadow Minister for Transport) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. Is the minister seriously saying, 11 years after his pronouncement that it was without question that foreign debt does increase interest rates, that now, when foreign debt is treble what it was in 1995, it has no impact on interest rates? Does the minister seriously believe the Australian people can now accept that, because a small part of the $500 million is not government debt, it has no impact on interest rates? Does he ask the Australian people to seriously believe that proposition?

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

If the honourable senator wants to mount that case, he should come in here with evidence from the Reserve Bank in which it formally attests to the size of the current account deficit being a reason it has increased interest rates. I defy him to do that. What I have reported is the statement by the Reserve Bank as to why it has increased interest rates by 0.25 per cent. It pointed to global demand, high commodity prices and the strength of the Australian economy. That is why, as I said yesterday and I will say again, it had to put a light touch on the brakes to ensure that we can sustain the prosperity that we have all enjoyed for the last 10 years under the Howard government.