Mr COX (10:35 AM) —by leave—The Reserve Bank's recent statements—in particular, the latest quarterly statement on monetary policy and the governor's evidence at the last House economics committee hearing—indicate a `global upswing'. Unfortunately, they also indicate that that will be accompanied by some increase in interest rates. In its latest quarterly statement, the RBA said:

This is consistent with warnings from the governor which began last year that he intended to move rates back to more normal levels. The last set of Australian interest rate increases were directed at doing that and slowing growth in residential real estate prices and, with it, unsustainable growth in household credit. The governor has given a range of estimates of what constitutes a normal interest rate level; the latest is 5 to 6 per cent. In his opening statement, the governor said:

At the hearing I asked him how he would `measure the RBA's conduct of monetary policy against that benchmark'. The governor's answer was:

The RBA could not ignore the fact that world interest rates—one per cent in the US, zero in Japan and two per cent in the European area; the shortest rates at about one per cent—were the lowest in the postwar period. I asked the governor whether Australian interest rates were maintained at a lower rate than he would otherwise have thought desirable in the prevailing domestic circumstances. Mr Macfarlane's response was:

I then asked the governor what the implications of US interest rates starting to address the normal criteria would be for Australian interest rates, looking forward. Mr Macfarlane said:

The conclusions you would draw from that are: interest rates have been as low as they have been because of international factors, not domestic factors; because of that, interest rates have been lower than was desirable in the current domestic economic circumstances—which should deflate some of the hubris being peddled by the Treasurer; and the RBA expects that interest rates may rise above normal rates at some point in the future because of the world expansion and interest rates being returned to normal levels in the US. The Treasury secretary having indicated that the fiscal stimulus from this budget was around one-half of a percentage point of GDP, we tested the governor's views on the extent to which fiscal policy is expansionary and its effect on interest rates. The governor's most succinct point on this was:

A Labor government would ensure that continues to be the case. That is why we have our trilogy of fiscal discipline: cutting outlays as a proportion of GDP, cutting tax as a proportion of GDP and maintaining a budget surplus. The Howard government has never imposed on itself any measure of fiscal discipline other than a nebulous `balance the budget over the course of the economic cycle', because to do so might in some way restrict the Prime Minister's capacity to pork-barrel.