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Wednesday, 14 September 2011
Page: 10152


Ms O'DWYER (Higgins) (19:40): This week is a week of anniversaries and sombre reflection. Tonight I speak about another event that sent shock waves around the world and changed the financial world as we know it: the collapse of Lehman Brothers on Wall Street three years ago, an event that has become synonymous with the global financial crisis. Fast forward to today. The European debt crisis is spreading like a modern-day economic plague, enveloping countries like Portugal, Italy, Ireland, Greece and Spain with speculation mounting about a Greek default. Global uncertainty is the only certainty. George Soros has recently warned that the European debt problem has the potential to be a lot worse than Lehman Brothers.

It is timely to reflect on the lessons that we should learn from our response to the GFC here in Australia. As Sir Winston Churchill was fond of saying, 'Those who fail to learn from history are doomed to repeat it.' While Treasurer Wayne Swan is quick to talk up his economic credentials, contrasting Australia's economic performance relative to that of our peers in coming through the GFC, he fails to understand why we got through the GFC as we did. In failing to understand this, our ability to deal with a potential GFC mark 2 is severely diminished. There were other, very important structural reasons why Australia came through the GFC.

I believe in giving credit where credit is due. It was the Hawke-Keating government which floated the dollar, allowing our exchange rate to dive at the end of 2008 to support our export industries, and there was bipartisan support for a wholesale funding guarantee for our banking system and for retail deposits in the dark days after Lehman Brothers collapsed. But it was the hard work of the Howard-Costello government in paying off Labor's $96 billion debt and investing in the Future Fund that meant the national balance sheet was strong enough to support those contingent liabilities. It was the coalition's regulatory reform agenda that struck the right balance between regulation and flexible markets. We introduced a dedicated prudential regulator, in APRA, which conducted regular stress tests on the banks. We reformed the Corporations Act to facilitate faster and more efficient capital raisings. Our FSR reforms, while not perfect, stood in the way of a US style subprime mortgage market emerging.

A long history of stable coalition government and mature policy making gave international investors confidence and reduced foreign capital outflows. Our tax reforms improved budgetary stability during a volatile period. We left the country with a $20 billion surplus. It was the Howard-Costello government that enshrined the independence of the Reserve Bank of Australia, with the RBA ensuring that our economy did not overheat pre-GFC. What is more, our RBA was able to deliver a huge stimulus directly into the economy because most Australian mortgages are floating rate. Finally, the coalition ensured that we maintained and nurtured diversified trading relationships, including with China, whose massive stimulus spending underpinned the Australian budget.

In contrast, Treasurer Swan would have the Australian people believe that we saw off the GFC with an indiscriminate spend on pink batts, BER blowouts and $900 cheques. If only it were that easy. That is what is so worrying. This government thinks it can spend its way out of trouble. If only it were about borrowing and spending. Perhaps that is why we read reports this week that the government has plans to raid the Future Fund, to rob future generations of Australians through a smash-and-grab raid today to try and paper over its incompetent economic management during a time when we are experiencing historically high terms of trade. To deliver a surplus by stealing from the Future Fund would be another broken promise and set a terribly dangerous precedent.

The size, scale and spend of this government's stimulus package was wrong, and you do not need to take my word for it; you can listen to the advice of the Australian National University economic historian, Selwyn Cornish, who was quoted in the Australian:

As it turns out, there was too much fiscal stimulus—there's even too much fiscal stimulus now. I think (the RBA) did what it had to do extremely well and the problem at the present time is not with monetary policy, it's with fiscal policy.

University of Melbourne economist John Freebairn was quoted:

… the fiscal stimulus was more than was needed and went on for too long.

We have an opportunity in Australia to grow the economic pie; we should be doing much better than we are. We have the capacity to be a world-beating financial services hub, but to do that we need a government that can set aside the spin and understand Australian exceptionalism compared to the rest of the world during the GFC. (Time expired)