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Monday, 25 May 2009
Page: 4156


Mr ANDREWS (8:42 PM) —I join with the chairman in making some comments about this report, Review of the Reserve Bank of Australia annual report 2008 (first report). The Reserve Bank plays an important role in the management of the Australian economy. Along with the Treasury it is one of the major sources of official advice to the people of Australia and to the government about the state of the economy and its future prospects. Unlike the Treasury, it is an independent body. As the Secretary of the Treasury, Ken Henry, conceded in his post-budget address:

The Treasury Department is a department of state. It is part of the executive government. It works to the government of the day, whatever the political persuasion of the government of the day. And so in that sense of course the Treasury is not independent from government and it can never behave as if it is independent from government.

Mr Henry added:

… the Treasury conducts its analysis without government interference.

But the reality is that the department serves the Treasurer and the government of the day.

This is important in the current discussion concerning the future forecasts about the Australian economy and, importantly, prospective growth. In the budget the Treasurer has projected real GDP to be minus half of one per cent in 2009-10, rising to 2¼ per cent in 2010-11 and then 4½ per cent in the following years. Indeed, Treasury predicts six successive years of growth of four per cent plus—and I will return to this forecast shortly.

By contrast the Reserve Bank is more cautious. It forecasts growth, for example, at 1¼ per cent in June 2010, 2½ per cent in December 2010 and 3¼ per cent in June 2011. The CPI predictions also vary significantly, with the RBA forecasting higher levels than the Treasury. The International Monetary Fund also thinks the Treasury forecasts are too optimistic.

Why is this important? The government wants the Australian people to believe there is a road to recovery from the massive deficits and debt to which they have committed the Commonwealth. Let me remind the House of them: a $58 billion deficit next year, leading to a $300 billion debt. How this vast borrowing is to be repaid is of vital interest to Australians who are concerned that they, and their children, will be repaying it for a generation or more. The government’s projections of growth are therefore significant. But are they believable?

The government wants us to believe that Australia will enjoy six successive years of more than four per cent growth. Let me put this in context. Albert Einstein once said:

The future is an unknown, but a somewhat predictable unknown. To look to the future we must first look backwards to the past. That is where the seeds of the future were planted.

The past is revealing. Six years of more than four per cent growth is unprecedented. Even through the boom years, Australia did not achieve this outcome. Indeed the Treasury secretary has to go back to the 1960s to justify his assessment.

Huge restraint will be required in the future, given the massive global stimulus that governments have promoted. Then there are other significant cost burdens on Australia, not the least of which is the proposed carbon trading scheme. The Minister for Finance and Deregulation has conceded that forecasting is difficult and there is a margin for error. This underestimates the situation. The Governor of the Reserve Bank said:

… it is actually the case now that, if we are honest, there is tremendous uncertainty around any point number. That means that in thinking about policy you should be thinking about not just the central forecast but what the risks are either side and how to respond to them.

Moreover, the Treasury’s past projections have also been shown to be wrong. In these circumstances, what store can we place on them today? What is happening today is the history upon which tomorrow’s forecasts are constructed.

Further projections out to 2020 are, almost by definition, unreliable. As a number of former Treasury officials have said in the past week, there is considerable uncertainty about such figures. The Treasury secretary once shared this view. In February, he told a Senate committee that net debt projections are ‘no better than crude assumptions about macroeconomic aggregates’.

The Reserve Bank thus serves an important function as an alternative source of advice to the Treasury. This, however, is not the Reserve Bank’s primary role. The primary role of the Reserve Bank is directed to monetary policy. Nonetheless, it serves an important function by providing a counterpoint to Treasury, as the events of the last few weeks underscore.

At the present time we do not know what the future is, but we should not be wishing for it. Wishing for the future will not create it. If the Reserve Bank is correct, then the future will be much more uncertain than the government wants us to believe. That will be a worry for us all. (Time expired)


The DEPUTY SPEAKER (Mr KJ Thomson)—Order! The time allotted for statements on this report has expired. Does the member for Dobell wish to move a motion in connection with the report to enable it to be debated on a later occasion?