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Wednesday, 14 May 2008
Page: 2774


Mr NEUMANN (7:22 PM) —Unlike the member for Wentworth I rise today to speak in support of the Reserve Bank Amendment (Enhanced Independence) Bill 2008, which deals with the Reserve Bank and monetary policy. Monetary policy, and the goals of it, are set out in the Reserve Bank Act 1959, which requires the Reserve Bank to conduct monetary policy in a way which, in its opinion, best contributes to the stability of the currency of Australia, the maintenance of full employment in Australia and the economic prosperity and welfare of the people of Australia.

Both the Reserve Bank and the Rudd government agree on the importance of low inflation and low inflation expectations. In pursuing the goal of medium-term price stability, both the Reserve Bank and the Rudd government agree on the objective of keeping consumer price inflation between two and three per cent on average over the cycle.

This bill is a key component of the Rudd government’s commitment to enhance the independence of the Reserve Bank of Australia, and it demonstrates the government’s commitment to putting downward pressure on inflation. The bill seeks to enhance the independence of the governor and deputy governor of the bank, and through them, the independence of the Reserve Bank of Australia. The bill will achieve this by raising the positions of governor and deputy governor to the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician.

Under the existing legislation, the Treasurer has the authority to appoint and terminate the Governor and the Deputy Governor of the Reserve Bank of Australia. The Rudd government is committed to improving the transparency of future Reserve Bank appointments and to removing overt political considerations from appointments and terminations. The current arrangement could be said to potentially undermine the principle of an independent Reserve Bank. It is paramount to protect this principle to ensure that the Reserve Bank can be guided by what it believes is in the best interests of the operation of monetary policy.

As former US President John F Kennedy once said: ‘In politics, perception is reality.’ Changes to the legislative status quo will improve perceptions in the public arena. The existing system gives the Treasurer the power to appoint partisan political candidates or those who have serious questions hanging over their characters, if the Treasurer so wishes. This position has the potential to seriously jeopardise the standing of the Reserve Bank and reduce its effectiveness, thereby lowering Australia’s long-term economic prospects. This is not something that the Rudd government will allow to happen. That is why we are introducing this bill.

I strongly support this bill because it is only by increasing the independence of the governor and the deputy governor that the Reserve Bank’s independence will be enhanced and we will have sound monetary policy in this country. This bill has at its core reform to bring Australia’s central bank governance arrangements in line with international best practice.

The Rudd government believes monetary policy must be conducted in an open and forward-looking way. It is critical that there be transparency and accountability in arrangements in the Reserve Bank so that the bank can continue to report on how it sees current and future developments in the economy affecting expected inflation outcomes.

The reforms outlined in this bill will enhance the effectiveness of monetary policy, but the Rudd government will not leave the burden of fighting inflation and higher interest rates to the Reserve Bank alone. The Rudd government is committed to relieving the financial pressure on Australian working families and individuals, and to keeping inflation in check. We went to the election with that commitment and we intend to honour it fully. We are determined to beat inflation and give Australians a helping hand. Inflation pushes up interest rates, eats away at family budgets, affects family domestic arrangements and threatens future prosperity. That is why we intend to tackle this problem head on. This legislative change is part of that whole process.

Currently we are tackling the skills shortages and capacity constraints in the economy. We are boosting capacity to allow the economy to grow further and support jobs growth without fuelling inflation. Fighting inflation is part of monetary policy. We are taking the responsibility for modernising our economy so we can sustain growth, create jobs and get inflation back in check.

My electorate office is in a shopping centre in Brassall in Ipswich. People come in my door all the time to talk to me. I often go into the Woolworths supermarket and have a chat with people and they tell me all the time about the rising cost of living. This government is committed to easing the burden on the Australian people. Inflation erodes the value of people’s savings and incomes and creates uncertainty for business and other investors. We are determined to help working families to ease the burden.

The coalition government failed to deal with inflationary pressures in the economy before they gathered pace. Instead they just ignored the problem and failed to invest in our productive capacity and left the Reserve Bank of Australia to shoulder the entire burden. Australian families are the victims of the coalition government’s policy failures, because of their recklessness. Because of that we inherited underlying inflation at a 16-year high, and 12 interest rises on the trot have been experienced by the Australian population. Elevated inflation is the Liberal Party’s parting gift to Australian families. We will not let it go. I am pleased to be part of a government that takes the fight against inflation seriously. This legislation is part of that fight.

The five-point plan that the Treasurer revealed last night is important. It includes disciplined financial restraint. We will deliver a surplus of more than 1.5 per cent of GDP in 2008-09; we will deliver 1.8 per cent of GDP. We are encouraging private savings through initiatives like first home saver accounts, which were delivered as part of our $2.2 billion affordable housing package. We are tackling the chronic skills shortages with measures that include 450,000 new training places. In fact we have delivered more than that; there are 630,000 additional training places for tackling the skills shortage. We are showing national leadership to tackle infrastructure issues, including broadband and Infrastructure Australia. And we have created the Building Australia Fund, the Health and Hospitals Fund and the Education Investment Fund. We are encouraging workforce participation through initiatives in child care, such as the childcare rebate and tax reform. And we have the most comprehensive tax review in Australia’s history since World War II.

Inflation has taken a long time to build up in our economy, as the Australian public knows. It has not emerged overnight, but it will take a considerable amount of time to deal with it. That is why we are going about it prudently, starting from day 1 to tackle this problem, in contrast to our opponents. The Leader of the Opposition told families in this country, who are facing the highest inflation in 16 years and 12 consecutive rate rises, that the economy was first rate.

Debate interrupted.