Senate debates

Wednesday, 4 December 2019

Matters of Public Importance

Monetary Policy

5:55 pm

Photo of Slade BrockmanSlade Brockman (WA, Liberal Party) Share this | | Hansard source

I got caught by surprise a little bit there, but seeing as I'm on my feet and Senator Bernardi's still in the room, I will say that I've known Senator Bernardi for quite a long time. I came here just after Mathias started in 2008, and I've known Senator Bernardi since then. And, just like Mitch Fifield, who left us a little while ago, he too was one of the people in this place who treated staffers with extraordinary courtesy and respect, and I will always remember that. I think it is a great shame I did not get to serve with you in the same party, Senator Bernardi, but I do wish you all the best for the future.

Back to the economy—we're talking about monetary policy. I think the key thing that we need to remember here is that, unlike in other parts of the world, in Australia we have an independent reserve bank—although we have not had it for our entire history—and monetary policy is the domain of an independent reserve bank. This has been extraordinarily important to the success of the Australian economy, particularly over the past 29 years. Twenty-nine years of uninterrupted economic growth, a record that no other parts of the world can claim to have delivered, has been built on a number of pillars. It's been built on good government. I will note that the majority of that period of government has been the Liberal and National parties in the seats of government. It has been built on having an independent reserve bank handling our monetary policy. It has been built on developing trade links with the rest of the world, signing free trade agreements encouraging Australian businesses to interact with the rest of the world. I've said on a number of occasions that Australia is very much at the end of the line. We're a trading nation. Without trade, Australia has very little. We need to trade. We must trade. That is, again, one of the key pillars of our economic success, and so has been our financial services sector.

The financial services sector has been under a degree of criticism, and much of it justified, over the last few years, but we must remember that the financial services system that we have—the banks and the other financial services arrangements in this country—has actually served us very well over the last 30 years. In contemplating where we go from here, we must always bear in mind that, whilst there are problems and issues which need to be addressed, it's certainly not by any means a basket case. In fact, it is a financial services system that's delivered us 29 years of uninterrupted economic growth.

Again, we do have an independent reserve bank, and the Reserve Bank governor, in October, stated that:

We live in an interconnected world … we can't ignore structural shifts in global interest rates.

…   …   …

However, negative interest rates are extraordinarily unlikely in Australia.

He went on to say:

We are not in the same situation that has been faced in Europe and Japan.

…   …   …

Our growth prospects are stronger, our banking system is in much better shape, our demographic profile is better and we have not had a period of deflation—

So we are in a much stronger position.

On the back of the largest tax cuts in two decades, we have seen the largest increase in household disposable income in a decade, growing by 2.5 per cent in the quarter, or 5.1 per cent compared to a year ago. A combination of tax cuts and interest rates will help free up cash for households and, together with record infrastructure spending, will support the economy. RBA Governor Lowe said to the House of Representatives Economics Committee on 9 August this year:

… we estimate that they—

the tax cuts—

will boost household disposable income by roughly 0.6 or 0.7 per cent of income, and that is a sizable boost.

Whether it is spent or saved—this is a very important point—the additional funds in the accounts and wallets of Australians are putting more money in people's pockets, supporting confidence in the economy and future consumption. Standard & Poor's said just last week that the outlook for the Australian economy is sound. The Reserve Bank has said that the economy has reached a gentle turning point. This week Deloitte Access Economics said momentum in the Australian economy is lifting.

Both the IMF and OECD are forecasting Australia to grow faster in 2020 than any of the G7 nations. I think that is a very important point. When we look at the international comparisons of real growth through the year—these are the figures published on 4 December 2019—we see Australia had 1.7 per cent real GDP growth, and Japan had 1.4, Germany had 0.5, France had 1.4, the United Kingdom had one per cent, Italy had 0.3 per cent, Canada was equal to us at 1.7 per cent, the euro area as a whole had 1.2 per cent, and the OECD average was 1.6 per cent. So 1.7 per cent from Australia is a very good performance, and something that again reflects the importance of both good government and also having strong, independent institutions like the independent Reserve Bank overseeing our monetary policy.

In my final couple of minutes I think we do need to reflect on the fact that the outlook for the Australian economy could have been quite different. We could have taken a different path. The Australian people, in their wisdom, decided not to. Just six months ago we looked down the face of imposing $387 billion in higher taxes on the Australian economy if those opposite had gained the seats of government. I think it is really important that all Australians ask themselves what that would have done in the current circumstances. What would that have done to the economy in the current economic environment we face? The Treasurer, the finance minister and the Prime Minister have all been very open since well before the election that the international economy and the Australian economy were facing significant headwinds. When Labor was last in power, business conditions had fallen to their lowest levels since the global financial crisis, business investment was plummeting, unemployment was rising, the budget was out of control and we had $240 billion of cumulative deficits. Now we've got a situation where GDP growth is strong, the budget is certainly very much under control and the government is delivering on its promise to the Australian people—delivering the fundamentals we need for businesses to invest, for businesses to grow, for businesses to employ people and, therefore, for the people of Australia to have the opportunities they deserve for the future.

Photo of David FawcettDavid Fawcett (SA, Liberal Party) Share this | | Hansard source

I seek leave of the chamber to go back to Senator Whish-Wilson, who sought leave to continue his remarks. Senator Whish-Wilson, you have the call.

6:03 pm

Photo of Peter Whish-WilsonPeter Whish-Wilson (Tasmania, Australian Greens) Share this | | Hansard source

Thank you. I appreciate that, Acting Deputy President. I was previously saying that we have the cheapest money in history. We are in uncharted times. Yet where is the leverage? Where is our government capitalising on this historic precedent and historic opportunity? Three years ago, the Greens initiated a select inquiry into infrastructure finance and infrastructure spending in Australia. We went all around this country. We literally heard from hundreds of witnesses, mostly businesses and experts. We looked at the size of the infrastructure gap in Australia, and that varied, but in some estimates it was up to a trillion dollars. Many of the projects in that gap were small projects in rural and regional areas. There is no shortage of infrastructure projects that will set up this country for this century, will deliver productivity and will deliver for local communities. We recommended a process where we could take money off-balance sheet, which is what other governments around the world have done, and embark on a massive program of fiscal stimulus in Australia. That's what this is about. This is an opportunity for fiscal stimulus.

Now, I don't get why this government is so obsessed with a budget surplus at such a time when nearly every economist in this country, including experts like we have at the Reserve Bank, senior figures, is saying we need more emphasis on fiscal policy. The problem we have in Australia at the moment is that so much of our money is going into an unproductive housing market boom. It is a debt trap. The cheaper interest rates are, the more people borrow. And we are using low interest rates and this debt trap to inflate our economy and economic growth. It is exactly the wrong thing to be doing. It is the lever this government chooses to pull, and I would need more than four minutes and 23 seconds to give senators in here an explanation as to why I believe that is a very inefficient, at best, if not dangerous way to be setting up this next decade of economic growth—indeed, this next century.

We should be taking money off-balance sheet. We should be doing deals with the states. We should have a financing mechanism that depoliticises, as much as possible, the infrastructure process and that actually gives business confidence. Why do businesses have such high hurdle rates for infrastructure? Interest rates are at 0.75 per cent. In fact, 10-year bond yields in Australia have been negative for the first time in history, yet hurdle rates for business to invest in infrastructure projects are still around nine per cent. If you go and ask them, 'Why are your hurdle rates so high?'—and for those who don't understand finance, a hurdle rate reflects the inherent risk that a proponent sees in investing in a project—they tell you it's because of political risk. We need a whole new infrastructure-financing mechanism.

As I said when I started this contribution, the Greens believe in a strong role for government in our lives. We believe in a government infrastructure bank. It could be set up to be independent. It could use off-balance sheet financing. It could co-invest with businesses. It could reduce, if not eliminate, the political context of infrastructure spending, so it's not pork-barrelling and we don't see the disasters we have seen in this country. We could literally set this country up for the next century. Just in my home town of Launceston, I can think of some projects, in the range of $100 million to $300 million or $400 million, that might seem small in the scale of that trillion-dollar infrastructure gap and that we could lock into record low interest rates for 10, 20 or 30 years, that would literally transform my town. I know $100 million for the light rail in Hobart would totally transform that town. Yet where is the commitment? It's missing.

Senator Canavan is happy to come in here and talk about what he and his party are doing in northern Australia. I don't see a lot of it in southern Australia. This is a historic moment in a historic time for us to actually be driving this. There has never been a bigger opportunity. I want to put on record that I hear the government come in and say that they've got this record infrastructure spend of $100 billion. While I have my colleague Senator Steele-John in the chamber, I will just say we know that if you strip Defence spending out of that, then you've got—I'd better be careful of my language here, but you don't have much infrastructure spending. Indeed, it's declining in real terms over the forward estimates.

It is declining, because this government have dressed up their industry policy, which in itself is dressed up as defence policy. They're spending hundreds of billions of dollars on new submarines and on defence projects. That's not infrastructure spending. Infrastructure spending is committing to communities for smaller projects all around this country, as well as for some big projects that actually enhance productivity, that reduce congestion in our cities, that make life liveable for Australians—not to mention transforming our energy grid, our energy system, to 100 per cent renewable energy.

The Greens will be bringing in a plan for a new green deal. We've talked about this a lot. This is exactly what Australians want. It's happening in overseas countries. It's a green new deal that creates the jobs of the future; brings the investment of the future; gets rid of the pollution problem and the great challenge of our time, climate change; reduces emissions; and protects communities from bushfires. A new green deal for Australians—it's not opposition to government policy, but proposition. We have done the work: we have researched this, we have used multiple Senate inquiries and we've spent the last five years building our data on this.

I'm very glad that Senator Roberts and One Nation brought forward this MPI today. It has given us an opportunity to talk about our vision for Australia and why what we're doing now is not good enough and how we need to totally reconsider our approach to this. (Time expired)

6:10 pm

Photo of Kimberley KitchingKimberley Kitching (Victoria, Australian Labor Party, Shadow Assistant Minister for Government Accountability) Share this | | Hansard source

Today's national account figures confirm what many Australian families have been feeling for some time, and that is the economy is simply not working for them. Growth is at 1.7 per cent for the year, and a measly 0.4 per cent for this quarter. Remember, this is the quarter where the government estimated that the benefits of the first stage of the tax cuts would begin to show. They haven't. Perhaps most worrying is that household consumption—that is, what people are spending—has effectively flatlined, recording just 0.1 per cent.

Today, the Treasurer said that, yes, he would like consumption to be a little higher but that this is a significant issue, particularly as we are now going into what is traditionally a strong period for the retail sector. We won't have those figures until early next year, but if the retail sector has a very poor Christmas period then that is a significant issue for the Australian economy.

The household consumption figure is the lowest it has been since the negative days of 2008, in the global financial crisis. We were in the midst of that then and the Labor government addressed it effectively. In fact, talking of Labor governments, Senator Brockman mentioned 29 years—I think that's what he said, but he's a little ahead of himself. We've had 28 years of continuous economic growth in this country. That was a consequence of the economic reforms that the Hawke-Keating government made. We have them to thank for the fact that our economy has remained so strong.

These dire figures from today's national accounts come on top of recent ABS labour force data showing that 19,000 jobs have been shed from the Australian economy in a month—the biggest fall since May 2016. And this figure doesn't factor in those who are underemployed and who would like to work more hours, which remains at a worrying 8.5 per cent. Together, this represents as many as two million Australians still looking for work or looking for more work.

I want to look at the Reserve Bank Act. This was passed in 1959, 60 years ago. We can see that, unusually for a central bank, it does not have just one single objective; it has three parts to its charter. Yes, it has what is normal for a central bank—that is, effecting and ensuring the stability of currency—but it also expands on this single role of controlling the supply of money in the economy to include a function that is more unusual for a central bank: the board of the Reserve Bank has a duty to consider the maintenance of full employment of the Australian people.

The legacy of the pursuit of full employment in Australia can be traced back to the vision of Joseph Benedict Chifley. Prior to becoming Australia's 16th Prime Minister in 1945, Ben Chifley served as Treasurer in John Curtin's wartime government. It was here, through the Commonwealth Bank, that Chifley extended functions to continue wartime controls on private banks, a precursor that became the model for the Reserve Bank of Australia 15 years later.

Hugh Armitage, who served as the Governor of the Reserve Bank, worked closely with Chifley on the formation of the Commonwealth Bank Act 1945, and this legislation formed the genesis of the Reserve Bank's current charter. Chifley's postwar vision was to use the instruments available to him to pursue a policy of full employment. He believed that this was of vital importance to the nation's interests. More than 70 years later, the Reserve Bank's current governor, Dr Philip Lowe, reiterated his belief in this charter goal in a speech he gave in June. He noted:

Low and stable inflation is a precondition to the attainment of full employment …

He went on to say:

The RBA is seeking to achieve the lowest rate of unemployment that can be sustained without inflation becoming an issue.

Labor believes this; it is in our DNA—indeed, it is in our very name.

Today, the government continues to run with an oft-repeated mantra that they are 'good economic managers', but the facts just don't stack up. For six years now they have been relying on outside influences to keep the economy ticking over, unwilling to intervene to protect the livelihoods of working Australians, lest this put at risk their surplus. We are now in a per-capita recession. If it weren't for immigration, the economy would be going backwards. We have record household debt, declining living standards and declining productivity—and I'm going to come back to productivity. In fact, this government is asleep at the wheel on getting Australia to be more productive. They are still on a sugar high from an unexpected election win and they are delivering nothing.

On productivity, we often think of productivity in a simple way: whether people are working sufficient hours and whether that has contributed to the economy. But I want to go to Harvard University's Kennedy School of Government, which has developed The Atlas of Economic Complexity. This maps the economic progress and opportunities of various countries. The data in the index shows that Australia ranks 93rd out of 133 economies—93rd! We are behind Morocco, Senegal and Uganda. We have many success stories in technology and education services, but we also have the same export profile as Angola.

Ensuring Australians are better educated, better trained for work and re-skilled has never been more important, because if we do not do these things our economy will go backwards. But this sitting fortnight has shown us that all this government has by way of response are plans to punish registered organisations, to punish the very organisations that represent working people. They've had a go at cutting the unions off at the knees, which was clearly the first step in a long play to re-introduce a WorkChoices-type piece of legislation.

Many wage earners haven't had a pay rise in real terms for the last decade. The last time business investment was this weak was almost 30 years ago and we were in the middle of a recession. To top this off, the Treasurer has been out talking on the importance of paying down the national debt. This avoids the inconvenient fact that it was the government who voted with the Greens political party to scrap Labor's debt ceiling—that was in 2013. National debt has never been higher. It has now reached a record $400 billion, all on this government's watch.

At every turn, the government refuses to use the levers available to it to pump stimulus into this moribund economy and give it the kickstart it so desperately needs. As today's account figures show, the first tranche of tax cuts hasn't had the desired flowthrough effect it was meant to have. In an indication that the public know trouble is on the way, they have decided to bank the money instead. In a recent speech, Dr Lowe, the Reserve Bank governor, said that, looking towards full employment, 'monetary policy is not the only option, and there are limitations to what can be achieved'. Not for the first time in recent months, he went on to say that fiscal policy, through infrastructure spending, should be considered.

This all lends itself to the increasingly apparent truth that this government never expected to win the 2019 election and therefore never put in place a vision or a plan for guiding the economy through these challenging times. Perhaps they should reflect on the third part of the Reserve Bank Act, which states:

… the economic prosperity and welfare of the people of Australia.

I don't often recommend that people read the objectives of the Reserve Bank Act, but it is unusual in a central bank and I think it's well worth having regard to. All policies at the moment need to be framed around job creation and productivity gains, not in propping up a milestone surplus, which seems to be getting narrower and narrower by the day.

6:20 pm

Photo of Malcolm RobertsMalcolm Roberts (Queensland, Pauline Hanson's One Nation Party) Share this | | Hansard source

As a servant to the people of Queensland and Australia I say clearly that One Nation is worried about what unconventional monetary policy will do to everyday Australians. We do not want to see the mistakes repeated here that are already being made overseas. At the Australian Business Economists dinner last week, the Governor of the Reserve Bank, Dr Philip Lowe, delivered a speech that officially declared that unconventional monetary policy was highly unlikely in Australia. As Senator Hanson said in the opening of this debate, what troubles One Nation is that in the Q and A after his speech Dr Lowe changed his position and declared, 'If the economic indicators were moving away from target, I think all options would need to be on the table.' These options are called unconventional monetary policy. That benign name masks a world of financial pain for everyday Australians. The RBA's program would commence when official interest rates reached 0.25 per cent. Official interest rates are currently at 0.75 per cent and tipped to fall. We are likely to reach the RBAs trigger point in this term of government.

Unconventional monetary policy includes (1) bank bail-ins, where customer deposits are taken and turned into shares in the bank; (2) negative interest rates, where people pay the bank to use the money; and (3) quantitative easing, or QE, where more money is printed and is used to pump up the economy and devalue the money. All of these things only work if people are no longer allowed to keep their money in cash. Cash prevents unconventional monetary policy from working. So suddenly people can see why the 'Cash ban bill' or the Currency (Restrictions on the Use of Cash) Bill takes on new significance. We wonder: is the government planning to introduce these measures? Senator Pauline Hanson and I call on the Governor of the Reserve Bank to clarify his remarks.

Let's consider some elements of unconventional monetary policy. Firstly, quantitative easing: QE. This is where the Reserve Bank buys government bonds and the government spends that money on pumping up the economy. This is also called debt monetisation, also known as printing money. A destructive idea. The Australian dollar will be printed and debased until inflation ensues and confidence in the economy collapses. Printing money leads to hyperinflation, which is what destroyed economies worldwide, from the Weimar Republic in the 1920s to Venezuela right now.

While this limited form of quantitative easing is the RBA's preferred model, the RBA did say that it could potentially go beyond this model if economic circumstances warranted. This includes using quantitative easing to purchase private sector assets. Typically, this would be to give the big banks some of this freshly printed money, buying mortgages off the banks. This is called mortgage securitisation. It's a simple process: the bank lends money to people to buy a house, usually an investment property, and then the government buys that mortgage, gives the money back to the bank and the bank lends that money again and again. What could possibly go wrong? This policy will transfer the risk of continuing to pump up the housing bubble from the banks to the taxpayers. But the banks deal in risk. That is what banks are for. Why is this risk being dumped on taxpayers? It could cost us billions. These measures amount to the government helping out its banking mates when it is the banks that should be responsible for themselves. Quantitative easing will likely price everyday Australians out of the housing market and give more market power to the big banks. Has there ever been a prime minister who loves his banks as much as Mr Scott Morrison does now?

Secondly, another aspect of unconventional monetary policy is negative interest rates. This is where you, the depositor, pay the bank to hold your money that is deposited with them. That seems fantastical, yet 14 countries now have negative interest rates, including the economies of Germany and Japan, which are amongst the world's largest. Australia's bond rate has been between 0.6 per cent and 0.8 per cent for months. We are almost into negative interest rate territory now. After allowing for inflation, Australian government bonds are indeed trading at negative returns. What should worry everyone is that people are buying these unconventional ideas. Politicians are being led down the path. The RBA and the federal government have been talking up the economy in recent years. They are saying that the Australian economy is fundamentally strong and that public and monetary policy is being managed both professionally and prudently. So why are people prepared to invest, as an example, $1,000 to get back only $998 after two years? And that is really just $950 after inflation. Why would people burn their money if the economy were doing as well as the government says it is? They wouldn't.

In times of negative interest rates, people refuse to pay the banks to hold their money. They respond by holding their savings in cash and by paying cash. No wonder the government has brought on the cash ban bill, or, as it's officially known, the Currency (Restrictions on the Use of Cash) Bill. This bill stops everyday Australians from tendering more than $10,000 in cash in a transaction. It forces people to put their money in a bank, only to see some of that money taken in bank fees and negative interest rate deductions. This government is thinking of forcing people to consume a banking product to have their money taken from them by the banks, in order to make unconventional monetary policy effective. One Nation considers that this is just plain wrong.

Thirdly, another element of this strategy is bank bail-ins. Banks were bailed out during the global financial crisis. Governments around the world then used taxpayers' money to stabilise bank balance sheets. They gave taxpayers' money to banks. That wasn't very popular with the public, which rightly concluded that banks caused the global financial crisis in the first place. And banks continue to display bad banking behaviour: money laundering for drug dealers, as the Commonwealth Bank did until it was caught out; money laundering for terrorists and paedophiles, as Westpac are just doing; charging customers for fees without service; and charging dead people for services they never provided. The new trick is called a bail-in. This is where depositors' funds are stolen and converted into shares in the bank. Let me say that again. A bank bail-in means some or all of depositors' funds are taken from depositors and converted into shares in the bank. Depositors don't get a say in the matter; their money is stolen.

What will defeat such a bail-in is people holding their savings in cash and paying in cash. The government's cash ban bill raises its ugly head again. For a measure that the government says is highly unlikely, the government seems to be putting all the necessary steps and preparations in place. In a nutshell, the RBA governor's solution to the biggest debt bubble in Australian history is printing more money, more government intervention in financial markets and, ultimately, more debt. One Nation would suggest that a far better way to get the economy going is to increase pensions and Newstart, for example. Put money into the hands of people who desperately need it and who will spend it in their local communities. Put money into infrastructure, such as our water for life project to increase the water reserves of town weirs across rural and regional Australia, droughtproofing our country and increasing productive capacity. What about building the hybrid Bradfield scheme to provide Australia with water and power security? And what about a people's bank to provide real competition and accountability for the major banks? The Bank of North Dakota has done it since 1919. The Commonwealth Bank did it until it was gutted by Liberal-Labor governments.

I end this contribution by asking: where are the government reassurances and denials on this? Instead of taking existing wealth away from everyday Australians, why are we not increasing our productive capacity to create new wealth? One Nation are open to concluding that the Reserve Bank has decided that forcing everyday Australians to lose their money is more desirable than the banks losing theirs. Instead of helping big banks fleece depositors, the government needs to increase Australia's productive capacity to generate wealth for all. I call on the governor to clarify his remarks.