Mr BOWEN (12:35 PM) —I am pleased to be able to speak on the tabling of this important report entitled Review of the Reserve Bank of Australia annual report 2004 of the Standing Committee on Economics, Finance and Public Administration. At the outset I would like to thank the chairman, the honourable member for Cook, for the bipartisan and cooperative manner in which he has chaired the committee and this inquiry in particular.

The opportunity to hold a public hearing and to hear from the Governor of the Reserve Bank is one of the most important forums for hearing from the nation’s central banker about the challenges and opportunities he sees for the economy. There is really no other opportunity for questioning the Governor of the Reserve Bank apart from these twice yearly hearings.

This hearing came at an important juncture in our economic progress. The Reserve Bank had already indicated in its statement on monetary policy that an increase in interest rates was becoming increasingly likely. The hearing gave the committee an opportunity to flesh out the reasoning behind this decision and future interest rate movements. The governor indicated that the biggest problem facing the Australian economy, in his view, was capacity constraints. In answer to my question about capacity constraints, the governor indicated:

This is a clear indication, which I and the opposition endorse, that much more needs to be done to lift our export performance. It is clear that the economic success that we have enjoyed has largely been built on the very good terms of trade that Australia is currently experiencing. These are the best we have had in 50 years. In fact, if Australia currently had the terms of trade that we had in 1986, our current account deficit would be 13 per cent of gross domestic product, not the current seven per cent. Seven per cent is bordering on catastrophic; 13 per cent would be truly catastrophic. I took the opportunity of asking the governor if he was worried about the downturn in the terms of trade, leading to a blowout in the current account deficit. He replied:

I do not wish to be alarmist about this. The decline in our terms of trade is extremely unlikely while the Chinese economy continues to grow strongly. However, not many people saw the Asian downturn in the 1990s coming, and downturns can come at very unexpected junctures. I do wish to make the point, however, that much of our economic success is based on these terms of trade being so strong while our exports and infrastructure to promote exports have been allowed to stagnate. We must do better. We must lift our research and development capability. We must increase work force participation. I will be speaking later in the week on the report of the Standing Committee on Employment and Workplace Relations and Workforce Participation, dealing with perhaps one of the biggest economic challenges facing this nation.

Of course, the latest interest rate increase has had a much bigger effect on the average householder than it did in the past. Household debt servicing is now at 9.3 per cent, the highest it has been in history. I was particularly glad to hear from the Governor of the Reserve Bank that the Reserve Bank is conducting some research into the amount of equity financing currently going on in this country. It is of concern to me that, unlike in years past, borrowing is occurring based on the equity held in a home for non-home purposes—for holidays, cars and things which do not add to people’s wealth. When the downturn comes or when interest rates increase, people will not be able to fall back on the wealth that has gone into building bigger or better homes, because their money has been spent elsewhere. But the debt is still there. I was very glad to hear that the governor agrees that it is a concern and that he is conducting research into the issue.

This is an important report. The interest rate increase is of keen interest to thousands of mortgagees across the country. The last increase resulted in a $50 a week higher mortgage charge for people on an average mortgage across this country. It is something of vital importance to the economy and to thousands of mortgagees across the country. I thank the committee secretariat for their support and, as the chair of the committee has indicated, thank the Governor of the Reserve Bank and the senior executives of the Reserve Bank, who appeared willingly and cooperatively before the committee and will do so again in August. I commend the report to the House.

The SPEAKER —The time allotted for statements on this report has expired. Does the member for Cook wish to move a motion in connection with the report to enable it to be debated on a future occasion?