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Tuesday, 24 March 1998
Page: 1383

Mr HOCKEY —My question is to the Treasurer. Can the Treasurer explain why the gap between US 10-year notes and Australian 10-year bonds continues to be minimal at around 0.2 of one percentage point, despite the fact that the US economy is less reliant on trade with Asia? Does this prove that the Australian economy continues to be recognised by world financial markets as a strong and reliable economy in a volatile region?

Dr Theophanous —Mr Speaker, on a point of order: under standing order 144 a question should not ask for an expression of opinion. Clearly, the second part of the question is nothing more than an attempt to express an opinion on this issue by the Treasurer. It should be ruled out of order.

Mr SPEAKER —The honourable member will resume his seat. The question, in fact, relates very much to a field in which we all have considerable interest, including the Treasurer. It falls within his responsibility. I call on the Treasurer to respond.

Mr COSTELLO (Treasurer) —Thank you, Mr Speaker, for allowing me to answer a question on interest rates. You will never get a question on interest rates out of the Labor Party in the House of Representatives; you will never get a question about tax out of the Labor Party; you will never get a question about jobs out of the Labor Party; and you will never get a question about debt out of the Labor Party. And, when you do get a question about interest rates, you have the brains trust of the Labor Party trying to prevent it from being answered. I welcome the fact that there are, on this side of the parliament, people who are interested in the things that the Australian public is interested in, particularly interest rates—and the member for North Sydney in particular.

The member for North Sydney draws attention to the fact that there is a very low difference between long-term interest rates here in Australia compared to the United States. It was not always the case. In March 1996, Australian investors were paying 2.2 percentage points more in interest rates than they were in the United States. That was in March 1996. After the government brought down its first budget in August 1996 and set out a path to take the Australian economy back into low inflation growth with a budget coming back into balance, the differential had fallen to 0.5 percentage points—about a quarter. Today, as the government goes about its fiscal repair target, the differential is minimal, at only 0.2 percentage points. That is great news for Australians. No longer do Australians have to pay more for their interest rates than Americans or other people in other parts of the world. Why? Because we are making the big economic decisions. It reflects the fact that our policies have given the lowest inflation rate amongst industrialised nations, an economic growth rate which is amongst the highest in the developed world and a budget which is due to move into surplus for the first time in a decade. It is good news for Australian home buyers.

We also look at the situation at the moment where we face one of the big challenges we have not faced in this country for a long time—the Asian financial downturn—something that no other Australian government had to grapple with in the last two decades. As you get weaker external demand with the strong internal demand, you will have pressure on the current account, a point that I have made on a number of occasions. But the good thing about the situation we now find ourselves in is that we go into this cyclical turn with much stronger financial fundamentals. In 1994-95, during the current account blow-out, the differential on interest rates was 2.5 percentage points; today it is 0.2. In the 1998-99 blow-out on the current account, the differential was 4¾ percentage points; now it is 0.2. And in the 1985-86 banana republic Labor first current account crisis the differential on the interest rates was 6½ percentage points. That was the first current account deficit crisis of Keating-Beazley Labor. At the moment it is 0.2 per cent compared to a position of 6½ percentage points.

You might say that with good, strong growth, with low inflation, with a budget coming back into balance, and with the lowest standard variable mortgage rates that we have seen in the last 30 years, there are a lot of people who are going to say, `Perhaps you could risk the irresponsibility of Labor again.' But you cannot; people have got to know this. The Labor Party still has the same policy: unfunded promises, a budget deficit, a build-up of debt—pushing up interest rates and pushing up the burdens on Australian home buyers. I say this to the Australian home buyers, the people who are saving nearly $3,000 a year in relation to their mortgage interest rates: you cannot trust Labor. They have not learned a thing. And now is not the time to risk your financial affairs on an incompetent group like the Labor Party.