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Thursday, 18 March 2010
Page: 3032

Mr CRAIG THOMSON (10:00 AM) —I seek leave to speak without closing the debate.

Leave granted.

Mr CRAIG THOMSON —The Australian economy has performed exceptionally well and suffered less from the impacts of the global financial crisis than almost all other advanced economies. The February 2010 hearing with the Reserve Bank was set against an optimistic forecast for growth and stability. It is notable that Australia was one of the very few advanced economies not to fall into recession.

Through 2009 gross domestic product grew by about two per cent, and in 2010 GDP is expected to reach about three per cent. Unemployment is trending down and hours worked are increasing. The strength of the upturn in the Asia-Pacific is quite strong, which is helping Australia to achieve higher growth prospects. In the large industrial countries, however, growth has been more tentative. The Organisation for Economic Cooperation and Development, the OECD, examined the impact of the global recession on growth prospects for member countries. It found that the near-term adverse impacts on Australia’s potential output were amongst the lowest in the OECD. Both fiscal stimulus and monetary stimulus have meant Australia has averted the permanent skills and capital distraction that generally accompanies deep downturns and have meant less permanent damage to our economy.

When the government announced its Nation Building Economic Stimulus Plan in February of last year, our economy had contracted in the December quarter of 2008 and was on the brink of recession, and we were facing the bleak prospect of a million Australians out of work. As a government we were determined to do whatever we responsibly could do to protect our economy, to protect jobs and to protect small business. One year on, a combination of economic stimulus and the resilience and hard work of Australian families and businesses has meant we have avoided recession and saved the jobs of tens of thousands of breadwinners. Together we have achieved stronger growth than any other advanced economy. We have created 112,000 jobs over the past year and have so far kept unemployment to under six per cent. Australia’s strong economic performance was highlighted by global ratings agency Standard and Poor’s earlier this month in the Asia-Pacific Sovereign Report Card, which noted:

Australia has been the best performing developed economy in the world in recent years …

There are encouraging signs of Australia’s continued recovery and more evidence of how well our economy has performed in the face of strong headwinds from the global economy. The recent retail trade figures show that the value of retail trade grew by 2.1 per cent through 2009, notwithstanding a 0.7 per cent fall in December. The volume of retail trade rose by a strong 1.1 per cent in the December quarter to be 3.4 per cent higher through 2009. This demonstrates the role stimulus has played in giving consumers the confidence to keep spending. Building approval figures were also encouraging. These showed that total residential building approvals were up 2.2 per cent in December, increasing by 53.3 per cent over 2009. This was the strongest annual growth in almost eight years.

Last month the Access Economics Investor Monitor showed that investment in our economy was helped by the government’s infrastructure stimulus. Compared with a year ago, there has been a very big increase in the value of defined projects that are now going ahead. Our nation-building investments in schools, roads, rail and ports are a big part of the reason for that improvement. Access Economics said:

… significant government investment also played a very strong helping hand, most notably the Federal Government’s schools upgrade program … economic infrastructure projects are a substantial part of the investment agenda, led by Federal and State Government spending.

As a result of Australia’s positive growth prospects, the Reserve Bank of Australia began lifting the policy cash rate from its emergency lows of three per cent. The cash rate was raised three times in succession between October and December 2009. In March 2010, the cash rate was lifted another 25 basis points, taking the new cash rate to four per cent. It is worth noting that this is still some 300 basis points lower than when we came to government.

During the hearing, the committee examined the RBA on the key forecasts for the economy, focusing on inflation and growth and their influence over the policy cash rate during the next 12 months. The committee examined some of the possible constraints to growth and possible impacts which could lead to inflationary pressures. In addition, the committee examined issues affecting bank funding.

The committee also dealt with the public claim by Senator Joyce that Australia might be at risk of defaulting on its sovereign debt. The committee is of the view that a claim like this is irresponsible and has the potential to undermine the economy. The governor advised:

There has never been an event of sovereign default by Australia as far as I know, and I very much doubt there ever will be.

Economists also called Senator Joyce’s comments irresponsible, especially at a time when financial markets were jittery and overseas investors might have taken his comments seriously. A key ratings agency, Standard and Poor’s, reacted to the statement about sovereign debt and said that it rated the debt of the Australian government at AAA, with a stable outlook. It said that AAA is the highest rating and indicated the agency’s opinion that the government has an extremely strong ability to meet all of its debt obligations. Standard and Poor’s added that the AAA rating was indicative of the extremely strong ability to meet financial obligations and, therefore, in their opinion, there was very little chance of defaulting on debt.

In conclusion, on behalf of the committee I would like to note that this is the 50th anniversary of the Reserve Bank of Australia. On 14 January 1960, the RBA commenced operations under its first governor, Dr HC ‘Nugget’ Coombs. The committee notes the contribution that the RBA has made to the stability of the Australian economy and looks forward to its continuing contributions in the years ahead. On behalf of the committee, I would also like to thank the Governor of the Reserve Bank, Mr Glenn Stevens, and other representatives of the RBA for appearing at the hearing on 19 February. The next public hearing will be on 27 August 2010, in Canberra. I commend the report to the House.