Alan Eggleston (WA, Liberal Party) Share this | Link to this | Hansard source

I present the final report of the Economics References Committee on the government’s economic stimulus initiatives, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

by leave—I move:

That the Senate take note of the report.

The global financial crisis began about a year ago with the collapse of Lehman Brothers in the United States and was followed by the collapse of hundreds of banks in North America and Europe with a concurrent crisis in confidence which saw reduced consumer spending across the globe. It seemed as if the world was on the edge of a repeat of the Great Depression of the 1930s. However, a repeat of the Great Depression has not occurred and the world economy is now showing very definite signs of recovery.

Australia has come through the crisis particularly well. The committee examined whether the actions taken by the Australian government were appropriate, the various reasons underlying Australia’s strong performance and whether the package should now be wound back. The report showed there was a range of opinions from credible economists on the need for and the appropriate size of and the timing and duration of the economic fiscal stimulus in Australia. The report also showed there was a range of views as to the appropriateness of reconfiguring the package given the improvement in underlying economic conditions.

At one extreme was the view that a more rapid winding back of the fiscal stimulus would reduce economic growth and increase unemployment from what it would otherwise have been. An alternative view was that continuing an appropriate degree of poorly targeted fiscal stimulus would also have costs. These would include higher inflation, higher interest rates, a crowding out of more productive private sector investment and therefore higher unemployment. This shows that continuing with an inappropriate degree of fiscal stimulus is not a cost-less option. In this regard the committee noted that the Reserve Bank of Australia recently stated that its expansionary monetary policy settings are no longer appropriate and may indeed be imprudent:

In particular, underlying inflation was still, on the latest data, above the target and, while current forecasts suggested it would fall in the coming year, the expected trough in inflation was significantly higher than earlier thought. Keeping interest rates at very low levels for an extended period could therefore threaten the achievement of the inflation target over the medium term. More generally, very expansionary policy could result in the build-up of other imbalances in the economy, which would ultimately be detrimental to economic growth.

Overall, members concluded—

that is, members of the Reserve Bank board—

that, while downside risks to the domestic economy could not be ruled out, they had diminished significantly over recent months. This meant that the balance of risks was now such that the current very expansionary setting of policy was no longer necessary, and possibly imprudent. The Board therefore decided in favour of raising the cash rate.

This opinion lends weight to the view that an expansionary fiscal policy is also no longer necessary and possibly also imprudent, leading to the committee’s view that the fiscal stimulus package should also be recalibrated with a view to maximising value for money for all remaining projects.

There was a consensus view that a range of factors have contributed to Australia’s exemplary economic performance. These included the continuing strong growth of China and the demand for Australia’s exports; the legacy of rapid growth, strong budget position and sound prudential regulation of the financial system that was left by the previous coalition government; the rapid move to strongly accommodate monetary policy; the fall of the Australian dollar in the second half of 2008; and the fiscal stimulus package. There was a range of opinions as to the relative contribution of each of these factors to the exemplary performance of the Australian economy. What was clear, though, was that fiscal policy alone was not the only significant factor and that the twin factors of the basic underlying strength of the Australian economy and the resurgence of the Chinese economy, resulting in increased purchasing of commodities such as coal and iron ore from Australia, were among the most significant factors in protecting Australia’s economy.

As stated above, there is a strong view that an expansionary fiscal policy is no longer necessary and the fiscal stimulus package should be recalibrated. The overall stimulus imparted to the economy from fiscal policy could be reduced in a number of ways. One way would be to focus on the components of spending that are classed as part of the fiscal stimulus package and to reduce or reschedule these expenditures over a longer period of time. It would appear that out of the $45 billion over the forward estimates there is about $31 billion of discretionary stimulatory spending remaining out there unspent. Most of this funding is for useful infrastructure projects, and one option would be to consider reducing the annual expenditure levels while retaining the gross expenditure proposed. That means the government could, for example, extend the period over which this $31 billion was to be spent to 10 or 15 years, which would reduce the inflationary impact of the program. An alternative approach would be to reduce the total stimulus injected into the economy by identifying offsetting cuts to other areas of government spending.

The committee noted that the economy has strengthened and that the rationale for maintaining the spending levels proposed by the Rudd government is no longer valid, and it is of the firm opinion that the levels of spending need to be reduced, postponed or offset to prevent the economy from overheating, in line with the Reserve Bank’s view as expressed in their latest board minutes of 6 October 2009. Accordingly, the committee recommended that the government commission an urgent independent report to be prepared on the fiscal stimulus package; that it include a cost-benefit analysis of all the remaining projects, including the timing and implementation for spending on those projects and recommendations on the feasibility of reducing, postponing or recalibrating the remaining discretionary funding on a project-by-project basis; and that the report be published in the Treasury’s website within 14 days of receipt.

Doug Cameron (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I must say I am not disappointed by the approach that has been taken by the opposition senators on this issue. They have run this argument about recalibration on a number of occasions. What ‘recalibration’ means is reducing the stimulus and forcing more Australians into unemployment. When I say I am not disappointed I mean I am not disappointed because the Australian public now see that any argument that the opposition have any economic credentials at all is swept away once and for all.

I go back to have a look at what this government was facing in terms of the global financial crisis. From the middle of 2007, the financial markets were showing signs of considerable turmoil. The realities of trade in exotic financial derivatives and the explosion in subprime lending that had characterised the finance market boom became clear. Inadequate regulation and greed on the part of the financial market players would set in train a sequence of events in the US, the UK and Europe that would culminate in the collapse, nationalisation or government bailout of major banks, insurers and credit providers. The list of failed financial institutions reads like a who’s who of those who only months earlier would have considered themselves the masters of the universe; as we now know, these emperors had no clothes.

Following the collapse of Lehman Brothers, it was clear that the whole financial system was on the brink of collapse. Share markets experienced the steepest and most rapid falls in stock prices in nearly 80 years. Major currencies around the world, Australia’s included, came under abnormally heavy selling pressure. Market confidence crashed, creating the conditions for unprecedented falls in global trade, production and investment. It was clear that without government intervention every advanced economy was heading for a deep and protracted recession. Governments the world over put in place fiscal stimulus packages while central banks added monetary stimulus by reducing official interest rates to unprecedented lows.

The consequences of the global financial crisis have been pervasive. Since October 2008, there have been nearly 50 government sponsored bailouts of major banks around the world. Financial institutions have suffered losses and asset write-downs totalling around $1.9 trillion. The global financial crisis quickly developed into a global crisis of employment. In the United States alone almost six million jobs have been lost since September 2008, and the International Labour Organisation estimates that 60 million jobs will have been lost by the end of this year as a result of the global economic downturn.

The human impact of the global financial crisis has been severe, and it is not something that you see discussed or debated in the coalition report. There is no discussion about the human crisis, no discussion about the implications for families and no discussion about the implications for communities—only some esoteric economic analysis of Keynesianism versus laissez-faire economic policies. That is the level of the debate from the coalition senators on this issue. The government was determined not to enter into any esoteric debate. We determined to cushion Australians from the worst impact of the crisis. Protracted downturns result in permanent dislocation from the labour market, and skills atrophy and risk creating an entire generation of unemployed. We were not going to stand by idly and watch that happen. We were not going to ‘wait and see’, as was the proposal from the coalition senators.

If we had not moved, viable businesses would have been destroyed and productive investments foregone. Capital and skills destruction can permanently reduce an economy’s long-term capacity, to say nothing of the scarring effects of unemployment to the individuals involved. The government response was a coordinated one. It was coordinated nationally and internationally. The Secretary of the Treasury told the Senate Economics Committee inquiry into the government’s economic stimulus initiatives:

I think the international consensus, including the OECD and the International Monetary Fund, is that Australia’s policy settings, at least to date, have been quite consistent with what is generally regarded as an appropriate stance, including in respect of timeliness and being temporary and well targeted.

So these academic economists who gave evidence—these blackboard economists who gave us lectures about Say’s law, who gave us lectures about crowding out, who were absolutely horrified that government would play any role in the economy—were wrong, absolutely wrong. The IMF say they were wrong, the OECD say they were wrong, the ACCI in Australia say they were wrong, the Australian Industry Group say they were wrong, other economists say they were wrong, and the Treasury and the Reserve Bank say they were wrong.

Yet what do we see? We see the opposition senators, on the basis of their dogma and with their view that this hidden, unseen hand will solve the problems, saying, ‘Let the market rip and everything will be okay.’ You have produced a report that has got no reality about what is facing this economy and facing the community in this country. There is no mention about what is happening to ordinary workers in your report, just this esoteric debate based on submissions from the academic, blackboard economists that you grab because you are sinking in a sea of irrelevance in terms of your economic credentials. You have no economic credentials—absolutely none on these issues. The Australian government has determined that we will take strong action and intervene on behalf of the Australian community, and that intervention has underpinned 210,000 jobs in the economy. What is clear is that the Secretary of the Treasury, Dr Henry, indicated that your argument to remove the stimulus would mean that immediately 100,000 jobs would be lost in the economy.

I am proud to be part of a government that has ensured that Australia is the only advanced economy to register positive economic growth. We have the second lowest unemployment rate of a major advanced economy. We have the lowest budget deficit of major advanced economies at 4.9 per cent, with the average deficit being 10.1 per cent of GDP in other advanced economies. We have the lowest debt of all major advanced economies. Government net debt as a share of GDP for the major advanced economies is to increase to 93.4 per cent. Australia’s debt will be 13.8 per cent of GDP by 2013 and will then decline. We are the only advanced economy not to go into recession, and if this stimulus had not been implemented, one million Australians would have been unemployed. That is our record against your theoretical, academic, blackboard economist analysis of the economy. It is no wonder you have no credibility with the Australian public, because you have no policies on the key issues that affect Australians in this country. You have just abandoned the Australian community in relation to your economic dogma. You did that with Work Choices. You are now doing it on economics, and you will pay a price for that. (Time expired)

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I rise tonight to comment about the so-called stimulus package also; as a member of the Senate Standing Committee on Economics I think it is important that I do. I also put on the record that I have never supported any of the stimulus packages, even the first one. It is clearly on the Hansard that I noted that position.

I did not support them because they are a ridiculous and profligate waste of money that have increased our debt load and will have to be repaid. I did not support them because Australia still had the capacity at that point in time, with three per cent interest rates, to further reduce interest rates. It was a position which was not the same as that of other nations in the world, who had around a zero per cent interest rate, so they only had the fiscal lever left—they did not have the monetary lever.

I do this also as the only accountant in this place, so I am very much attuned to this—as opposed to the so-called blackboard economics that Senator Cameron was talking about. I actually lived, breathed and made my money by dealing with this sort of problem. Our nation now has, by reason of a fiscal stimulus package, a massive debt that has to be repaid. If you believe the proposition that the fiscal stimulus stimulated the economy, then of course you have to believe the proposition that paying it back and taking that money out is obviously going to have a huge negative effect on the economy. But you are going to pay back more than the fiscal stimulus: you are going to pay back the interest on it as well.

Let’s look at what we could have done as an alternative. If we had stayed out of the economy at that point in time and, instead of going in and inspiring the dollar to appreciate, had taken the interest rates down and tried to devalue the dollar, then a lower dollar itself would have acted as a stimulant instrument in the economy and started driving the economy forward. But oh, no—they would not do that. Why did Labor not do that? Because the IMF told them that it was not the right way to go.

Of course, the IMF was talking to a whole range of nations that were in a different position to ours. Ours is predominantly an export-type nation. So this government has gone in and has borrowed up to the hilt. It has stacked us up with debt to the eyeballs so that we could go out on some spending spree and have the stimulus of the nation spread across the carpet on Christmas Day with ‘made in China’ written on the back. That is what the Labor Party has delivered to us as an outcome. Then they have the gall and the hide to say that their stimulus package is what kept us out of recession.

Doug Cameron (NSW, Australian Labor Party) Share this | Link to this | Hansard source

It’s got under your skin!

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I can hear Senator Cameron going on now, because he knows I am right. He knows I am right, because they have not got a clue how to run the show. This is where it started: $21.6 billion in cash we had in the bank before you fools turned up. Since that point in time we are now $110 billion in debt and the Labor state governments are $170 billion in debt. Debt up to our eyeballs! And what have we got to show for it? I will tell you, ladies and gentlemen of Australia: pink batts. We have got ceiling insulation in the roof for the rats and the mice to urinate on. That is what they have given us.

What else did they give us? Nine hundred dollar cheques so you could buy a plasma screen right near you, made from Seoul in Korea or made in Taiwan—

Doug Cameron (NSW, Australian Labor Party) Share this | Link to this | Hansard source

You are incompetent, Barnaby!

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

not made in this nation, putting your workers out of a job, Senator Cameron. You are supposed to be looking after the working man, Senator Cameron, but oh no, you could not do that. And then you get upset.

Look at the ridiculous position they have now put us in. We are in a position of arbitrage and they created it; a position of arbitrage, where our interest rates are higher than the United States’s interest rates. They are going up, and you are forcing them up. That arbitrage itself is forcing up interest rates; it is putting pressure on every Australian working family—every per cent this interest rate goes up. It costs you $5,000 per per cent for bad Labor Party management: $5,000 per per cent per house facility for bad Labor Party management. This is what we have got.

What did you get for your $110 billion worth of debt, Australia? What did you get for your $170 billion worth of debt, states? What did they give you? They gave you high interest rates, they gave you a collapsing economy and they gave you a person with no idea. They are following the IMF and this is what we get. We have got higher interest rates forcing up. Now they are trying to explain to people that higher interest rates are what they are looking for. They are using higher interest rates as a recommendation for their government. That is what we have got: higher interest rates as a recommendation of the Labor government.

How long did it take them to get us to this position? They are not even through their first term. So now we have the position where we have got a major overhead on our economy that is going to suck the blood out of our economy. If we look at the stimulus package itself, if we had built some constructive assets with the money they wasted—even if they had built a pipeline to take the water out of the north and take it to the south, and if those pipes had rotted in the paddock, we would have got more stimulant out of that than what they delivered to us: no aggregate increase in our economy.

Then Mr Swan comes up and says, ‘I have saved you from the recession.’ The effect of the stimulus package was 0.8 of one per cent, but exports went up by 20 per cent. They say that their 0.8 per cent is better than the 20 per cent increase in exports. They say that their stimulus apparently put coal on ships, it put wheat on ships and it did all these marvellous things. Their stimulus did nothing but load you up with masses of debt! And now we have got a dollar that is appreciating because we have got an arbitrage in the interest rates. We have to attract money into the economy; but do not worry—it will turn around. In about May next year it will all turn around—the dollar will meet a point of equilibrium and it will start to fall over. What will we get as it falls over? Interest rate pressure on interest rate pressure. The Australian people can thank the Labor Party and that is why they are busting themselves to get to an election before it all goes pop. We know that is going to happen.

To add to this wondrous mix of Labor Party management, what have we got? The ETS. How are you going to prop up the parlous state of the finances? Where are you going to get the money from to pay for the interest bill? Where is that going to come from? It is going to come from the emissions trading scheme, this moral bulwark that they move out. They are going to cure the climate. They have stuffed up the books but apparently they can cure the climate. Today we had the Labor Party backbenchers talking about sea level rises. Apparently the ETS, like King Canute, is going to solve the tide. They can do everything! They are amazing! They are unstoppable! They are saving the tide and they are saving the climate but they are stuffing up the books. They could not run a chook raffle in a pub on a Friday night. They are beyond low contempt—they are hopeless.

We will wait. Every day you can ask, ‘How big is the debt today?’ It goes up and up; a billion dollars per week, Australia.

Government Senators:

Government senators interjecting—

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

In they come—they are coming in because they know it is right. They are just like ferrets. They are running out of their little barrow and coming down to the chamber to try and protect their dear leader and the Treasurer. This is a sore point for the Labor Party. This is a sore point—their complete lack of acumen. Have you got one person who has ever run a business over there? One? One of you?

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

Yes.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I will take the interjection, Senator Sterle. What did you run—a truck up and down the highway? None of them have run a business. They have not got a clue.

Scott Ryan (Victoria, Liberal Party) Share this | Link to this | Hansard source

Order! Senator Joyce, please address your comments through the chair.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

There are no business people there. There is no-one who has ever had an overdraft. None of them have ever had a business to support. They would not know—hang on, we have one.

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

Mr Acting Deputy President, on a point of order: that is a slur upon some members on this side of the chamber. There are a few of us who have run businesses. Unlike Senator Joyce, I have been out there and done it hard. I was not born with a silver spoon in my mouth.

The Acting Deputy President:

There is no point of order. That is a debating point.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

Apparently there are few of them who have run a business. How many of them are there on that side? We have three who have run a business, but they are running the nation into the ground. That is what they are doing. What have we got from the stimulus package? I am sure Mr Harvey Norman thought it was a great idea—a little bit of sugar for him but no sugar for the economy and no long-term effect on the nation. All we are left with is the major debt. Now they have admitted that there are only three people in the whole of the Labor Party who have run a business. What a recommendation for a political party. Over on this side I think that the vast majority of people have run a business. In the National Party, I know, we have all run a business, each one of us, as opposed— (Time expired)

John Williams (NSW, National Party) Share this | Link to this | Hansard source

I seek leave to continue my remarks on this document.

Leave granted; debate adjourned.