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Tuesday, 8 August 2006
Page: 89


Dr EMERSON (8:23 PM) —The Australian Technical Colleges (Flexibility in Achieving Australia’s Skills Needs) Amendment Bill 2006 is a belated and feeble attempt to address the problem of chronic skills shortages in Australia. You do not have to be Nostradamus to have foretold the acute skills shortages that are now apparent right across the Australian economy. Those skills shortages are a direct contributor to the inflationary pressures that have resulted in three interest rate rises since the election in 2004, despite the government promising to follow policies that would keep interest rates at record low levels. In the economy, everything is related to everything else—and I will traverse the litany of Labor and official warnings about impending skills shortages and the relationship of those skills shortages to the other pressures that are so evident in the Australian economy today.

When this government assumed office, one of its early decisions in the 1996-97 budget was to cut training programs. I have just taken the opportunity to read The Victory. It is made plain in that book that the cut in training programs was poll driven. The coalition was in possession of research which showed, in those polls, that the Australian people considered training programs to have a ‘revolving door’ dimension to them—that is, people were not put into meaningful jobs, but continued in these training programs. So the government opportunistically cut funding for TAFE, cut funding for training programs, because it thought it was an easy thing to cut—that there would not be a community reaction. This is evidence yet again of the coalition’s behaviour of making short-term, opportunistic decisions at the long-term cost of this nation. That decision was the first of many decisions that have led to public investment in our universities and TAFEs falling by eight per cent since 1995, whereas in the rest of the OECD, the rest of the developed world, public investment in universities and TAFEs has increased by 38 per cent. We are now paying a very high price for this government’s refusal to invest in the skills of our people and the nation’s future.

But it is not the case that there were no warnings. A search of the Hansard will reveal, for example, that as early as 1999 the member for Batman was warning of skills shortages in Australia. Indeed, in a speech that I made on 20 August 2001, I said:

But the fact is that, without investing in the nation’s future, companies and industries will face dramatic skills shortages in the future.

Fast forward from 2001 to the Reserve Bank statement issued just last Friday, which said labour shortages are broad based across industries and skill levels. So, between 1999 and August 2006, the warnings were delivered, one after another, by the Australian Labor Party, by the OECD, by the International Monetary Fund, by the Reserve Bank and by the Commonwealth Treasury. They were all ignored by this government, to the point where, at the last election, the government obviously felt that it needed to do something, even if it was not much more than tokenistic—and that is why we have this legislation before us tonight.

Back in 2001, I pointed to the problem of the government spending for today and refusing to invest in the nation’s future. On 6 March 2001, I said of the government:

They are spending like drunken sailors.

I also said:

… the government has not done anything substantial to continue the improvements in productivity that are required in this economy.

That was an early warning of the extravagance of this government and the lack of any productivity-raising reform agenda to build on the reforms of the previous Labor government. Come forward to 17 November 2004 and the government had engaged in a $66 billion spending spree to get re-elected, of which only seven per cent could genuinely be considered as an investment in the nation’s future, and the rest was a big public stimulus to consumer spending. In a speech in the House, I referred to the ‘coalition government policy of promoting consumer spending as the government lets the good times roll, especially in the lead-up to federal elections’. I said:

Instead of hosing down consumption spending, the government has fuelled the fire through its massive budget and pre-election spending spree …

Labor was warning of the problem of this government’s extravagant spending and its unwillingness to take a long-term view and invest in the nation’s future.

In that same speech I said:

Where is the Howard government in all of this? That answer is that it is fuelling the consumption boom and neglecting Australia’s export problems. Australia should not have been spending all of the lift in national income from our historically favourable terms of trade ... Some of this temporary increase in national income should have been put aside by the Commonwealth for the inevitable rainy days.

I went on to say:

To avert damaging interest rate rises, the federal government should have been reining in Commonwealth spending instead of engaging in this consumption spending spree.

I also said:

Why should we be surprised that there are such huge skill shortages in Australia? The government’s only response is to seek to bypass the states and in two or three years time to have some technical colleges in place but, by then, the skill shortages in this country will be acute and we will have forgone the sorts of increases in productivity growth that would have been available from a vigilant government investing in the skills of this nation ... instead of spending so much of the budget surplus on fuelling the consumption fire instead of investing in our future.

There was warning after warning from Labor, and that was on 17 November 2004. On 7 February 2005 the Reserve Bank issued a monetary policy statement, which stated:

For the past couple of years, underlying inflation has been held down by the lagged effects of the exchange rate appreciation that took place during 2002 and 2003, but the maximum impact from that source has now passed. Hence it is likely that underlying inflation has now reached its low point and that it will start rising during 2005. Domestically-sourced inflation has been running faster over the past couple of years ...

Professor Ross Garnaut was saying the same thing. On 29 July 2004 he said:

The real domestic demand expansion of recent years is at least as virulent as that which precipitated the extreme monetary tightening of the late ’80s.

I said:

The Treasurer knew, when he was signing off on that budget and on those pre-election commitments, that what the government giveth in a pre-election spending spree, the Reserve Bank taketh away in the form of high interest rates later.

The warnings could not have been clearer, but the government’s practice of ignoring them could not have been clearer either. It is so arrogant that it believed that it would be able to canter along, based on the productivity surge created by the reforms of the previous Labor government and on the back of the commodities boom, and never have to make any decisions for the long-term good of this country. Instead it wanted to get involved in pre-election spending sprees, get itself re-elected and let the good times roll.

Of course, the chickens were going to come home to roost. After a 15-year economic expansion, it is inevitable that, ultimately, Australia’s domestic demand would smash up against capacity constraints, which means it has to have a vent somewhere. That vent is either into imports or higher domestic prices. In fact, in Australia’s case both of those have occurred. We have now had a record 50 successive trade deficits because of the pressure on imports, our deteriorating, appalling export performance—in spite of the best terms of trade in 50 years—and domestic price pressures brought about because this government has failed to ease those capacity constraints, the skills shortages and the infrastructure bottlenecks in this country.

Instead of doing those things, in the May 2005 budget after the last election, when it did have an opportunity to save for a rainy day and invest in the nation’s future, it increased the $66 billion spending spree to $103 billion. I said in a speech on 24 May 2005:

If a $66 billion spending spree puts upward pressure on interest rates, then a $103 billion spending spree surely does.

I asked of people who were receiving the miserly $6 a week tax cuts:

Will they be grateful if and when their mortgages go up by another quarter of a percentage point—and perhaps even beyond that? Those tax cuts will be gone, and they will not thank this government for embarking on an irresponsible spending spree that took away the tax cuts—and far more—in the form of higher mortgage interest repayments.

It just goes on and on. On 31 May 2005 in a speech to the parliament, I said:

I am putting on record again tonight that we do not support the budget on the grounds of macroeconomic management ...

…            …            …

Put all those pieces together and you see the preconditions for an interest rate rise.

What happened? We had two interest rate rises. We had an intervening increase in the price of petrol, which performed the function of an interest rate rise by slowing down consumer demand, but it only deferred the inevitable—an interest rate rise followed by yet another one in August this year. That is three interest rate increases since the last election because this government has failed to invest in skills and ease the other capacity constraints created by its neglect of the Australian economy.

On 24 May 2006, again in a speech on the budget, I said that I did not support the previous budget on the grounds of macro-economic management:

That was because that budget contributed so much to consumer spending, which would exacerbate inflationary pressures and lead to that interest rate rise—all of which did happen.

I went on to say:

There will, in all likelihood, be yet another interest rate rise towards the end of this year.

That rise happened at the beginning of August. I pointed out:

... this budget again has laid the preconditions for a further interest rate rise.

On 31 May 2006, I said:

The way in which the government could have done something this time to alleviate the prospect of an interest rate rise as a result of the fiscal stimulus would have been to cut government spending.

There is a novel idea! But in the budget the government did not cut government spending. Instead it prevailed over an expansionary budget—a point acknowledged in the Reserve Bank statement issued last Friday. When the government is saying that it was not fuelling consumer demand or adding to inflationary pressures, it was and that budget did. It again failed to invest in our nation’s future.


The DEPUTY SPEAKER (Hon. IR Causley)—It would be helpful if the member for Rankin could link this back to the bill before the chair.


Dr EMERSON —Absolutely, Mr Deputy Speaker. The way around it would have been to rein in spending, the extravagant spending that this government has continued to embark upon, and instead invest some of the budget surplus in skills creation, so easing the capacity constraints on the Australian economy. It is those capacity constraints that have led to interest rate pressures. This legislation before us tonight is a belated, feeble attempt to do as little as possible about the acute skills shortages in this country. Only four of these technical colleges now look like they are up and running, there are huge problems in the implementation of this measure and the first graduates of those technical colleges will not be coming out for several years.


Mr Hardgrave —That is not right. There are not four; there are five.


Mr Laurie Ferguson —He said there are five now!


Dr EMERSON —So there are now five, and the first graduates will be coming out very slowly. The Minister for Vocational and Technical Education, who is at the table, believes that this is more than enough to ease the skills crisis in Australia—a pathetic attempt to establish a few technical colleges because he and the former minister for education could not get on with the states. They abolished the Australian National Training Authority. They turned their backs on cooperative federalism, because they are so arrogant that they believe that they can run the entire Australian economy, every aspect of the Australian economy, and that the states are ill equipped to do so. But the states are well equipped to do this, and it was Labor’s creation of the Australian National Training Authority, a shining example of cooperative federalism, that showed the way to the future.

If this government had not been so arrogant, so combative and so politically motivated, it would have continued to cooperate with the states in increasing TAFE funding and training more generally. But the former minister for education, now the Minister for Defence, wanted to show his cabinet colleagues how tough he was, how he did not need to get on with the states, how he could roll over the top of the states. While he might think that he is a great man for doing that and that he got a promotion to the Defence portfolio for doing that, the Australian people are suffering through acute skills shortages that are putting enormous pressure on inflation and interest rates. I need only refer to the Reserve Bank’s statement issued on 4 August, which says:

… the recent tax cuts and other fiscal measures announced in the Australian Government Budget, are expected to support growth in household income and consumption in the second half of this year. Despite the expected growth in disposable income, the household debt-servicing ratio is likely to rise further in the period ahead, since household debt has been growing at an even faster pace than income. Together with the recent increases in interest rates, this is likely to boost households’ interest payments.

So it is the mortgage holders and the people who are trying to get into a home who are paying the price of the government’s slothful neglect of the challenge of easing the skills shortage in this country. It is a challenge that was identified by the member for Batman as early as 1999, by me as early as 2001 and by official report after official report from the IMF, the OECD, the Reserve Bank and the Treasury, to name but a few. But the government, in its arrogance, has ignored all of those warnings and that is why we have got this pathetic bill in front of us. That is why the Reserve Bank concluded, just a few days ago, that labour shortages are now ‘broad based across industries and skill levels’.

That is putting enormous pressure on prices and enormous pressure on interest rates. That pressure on prices is so acute now that the Reserve Bank has estimated that, even with the latest interest rate rise, the underlying inflation rate—take out all the extraneous factors—for the next two years will be three per cent. What is significant about three per cent? It is at the top of the Reserve Bank’s range, and if it goes above three per cent the Reserve Bank’s hand will be forced. That means that there will be in all likelihood another interest rate rise before the end of the year. If I look at a graph prepared by the ANZ Bank on the probability of two interest rate rises in the next six months, that probability appears to me to come in at about 85 per cent. This is the market predicting two interest rate rises within the next six months with an 85 per cent probability.

Mr Deputy Speaker, you say that the member for Rankin should relate his remarks to the bill before us tonight. I am, Mr Deputy Speaker. I am saying that the Australian people who are borrowing for a home, trying to get into a home, are paying the price of this government’s wilful neglect of skills shortages that have accumulated in this country since 1999 despite warnings from Labor and despite all other official warnings. The OECD has just released a country report on Australia and it says that any further increases in revenue as a result of the record mineral prices should be saved because we cannot afford any more pressure on interest rates. I wonder if this extravagant government knows the meaning of ‘saving’. That is the link. That is why we have such acute skills shortages in this country. (Time expired)