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Tuesday, 23 August 1994
Page: 8

Senator HILL —My question is directed to the Leader of the Government in the Senate. As Senator Evans seemed to be asking for a question on the government's policy of pushing up interest rates again, I ask: did he and his government not learn the lesson last time that rising interest rates particularly hurt small business through rising overdrafts, and medium to low income earners through rising housing loan interest? Did the government not learn that lesson on the last occasion? What evidence of inflationary pressure did the government rely upon in the light of the Master Builders Association's quarterly economic review which has found that residential building is expected to slump by 11 per cent, or almost $2 billion, during the coming year?

Senator GARETH EVANS —If that is the case in relation to residential building, it indicates that the demand on housing stock has passed its peak and so we are highly unlikely to run into particular difficulties in that respect with the kind of issue that Senator Short was talking about before. More generally on the question of interest rates, it is not a matter of the government seeking or working to push up interest rates. It is a matter of the government engaging in sensible, prudential, long-term economic management of this country.

  It is the case that interest rates are still at relatively low levels, with the official cash rate only three-quarters of a percentage point now above what it has been at its lowest level for 20 years. Three-month bill rates are also close to their lowest level for 20 years. The 10-year bond rates are well below their levels which prevailed right through the 1980s.

  What is involved in all of this is an effort to anticipate what is going to happen with the economic cycle. We all know that these cycles in the past have had 12 to 18 months to take their effect—that interest rate increases of any kind have an effect only 12 to 18 months out. What we have to do is try to anticipate where the cycle is going to be. It is a reasonable expectation, given present rates of growth and all that we anticipate about likely surges of investment and so on over the next few months, that there will be some pressure on the supply side. Supply constraints will be showing up over that particular time frame, needing accordingly some adjustment—an adjustment that has to be made now because of the lags that are involved—to smooth the peak rate of that particular situation.

  That is what it is all about. What we want to do is ensure that growth in this country is sustainable at high levels and that we do not move up to excessively high peaks and, as a result, the excessively low troughs that follow. It is always a matter of judgment what the particular rate increase is going to be. It seems that the 0.75 per cent increase in the official cash rates announced a little while ago slightly exceeded market expectations. That means that all the heat has gone out of any current expectations about further increases for the foreseeable future.

  The market has responded well. The commentators have responded well. It has been seen to be a prudential, sensible exercise in economic management. Of course, it takes place against an environment in which the economic fundamentals in this country are such as to give us all enormous confidence that this situation can be sustained. We have an economy growing at five per cent at the moment—and certainly going to exceed the budget expectations for growth; we have inflation running at 1.7 per cent; we have unemployment down to 9.5 per cent. We have job growth—376,000 jobs since we were re-elected 15 months ago. We have a four per cent job growth rate, the second fastest in the OECD.

  The environment is good. Do not talk it down. I know it hurts opposition senators. I know it is about the only game they have left in town, with their leader making such a conspicuous fool of himself day after day. They know that if they are to offer the Australian people any kind of credible alternative, they somehow have to dent the credibility of this government. They should not try.

  We know what we are doing. The economy is in good shape. We are acting in a way that is anticipating what of course we know will be an increased pressure on the supply side over the course of the business cycle. We are taking a perfectly sensible, rational, thoughtful and well-judged step at this stage. That is every reason, as a result, for business confidence to be maintained.

Senator HILL —Mr President, I ask a supplementary question. I know that the minister has been distracted of recent times by matters of personal ambition—although, one might say, if his popularity and that of Barry Jones in the Labor succession stakes are both at six per cent, it is hard to see why he, not Barry Jones, deserves the seat. The minister gave a whole series of reasons why the government should not be pushing up interest rates at the moment. Does he not understand that Australia has among the highest prime bank rates in the world—higher than those in Austria, Britain, Canada, Denmark, France, Germany, Holland, Italy, Japan, Spain, Switzerland and the United States? Does the minister not understand that out in the market place small business is already paying extremely high interest rates? He is seemingly arguing today that there is no real reason why his government had to push them up even further. Why does the government not start to understand some of the practical realities of business?

Senator GARETH EVANS —The Australian economy has always been structured a little differently from those that Senator Hill refers to. The truth of the matter is that in this country, for as long as anyone can remember—including through all the dark years of the management of those opposite—interest rates have always been significantly higher than in many other countries because we have always been a mainstream significant capital importer; and it has been part of the structure of the economy to require that at base levels. The important thing to realise is that those levels that apply at the moment, as I said in answer to the initial question, are at the lowest they have been for 20 years. That is the level at which we expect them to be sustained in the future.

  As to the other matter that was raised, it is not the case that I am feeling distracted at the moment; it is the case that I am feeling a little lonely. Kathy Sullivan, Bronwyn Bishop, Allan Rocher and Fred Chaney have gone down. I have been missing them a little, particularly since they have been so successful. That is one of the reasons I am contemplating it.