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Shadow minister discusses Reserve Bank and interest rates; minimum wage decision by Fair Pay Commission; and ACTU congress.

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Wednesday, 25 October 2006



GARY WILKINSON: Now we have the Industrial Relations Minister [sic], Stephen Smith. Minister, [sic] good afternoon. On the surface, it would appear the Reserve Bank is likely to raise rates next month.


STEPHEN SMITH: Well, if the Reserve Bank does that it’s of course entirely a matter for the Reserve. But the reasons that it will do so, if it does increase interest rates again, is John Howard and Peter Costello’s complacency and neglect about skills and infrastructure. They are the reasons that the Reserve Bank has been drawing attention to, for some time, causing capacity constraints in our economy, and it’s that that’s been putting upward pressure on inflation and, as a consequence, upward pressure on interest rates.


GARY WILKINSON: Stephen, I think I credited you there with being the minister. Perhaps I was getting a bit ahead of events.


STEPHEN SMITH: I gathered that was more in hope than expectation but we’ll take it as it comes.


GARY WILKINSON: But in response to what you had to say there, I mean, higher petrol prices and the drought, which are obviously two major contributors to the current inflationary situation, are beyond the government’s control.


STEPHEN SMITH: Which is why we have two measures of inflation. We have the headline figure, which we see at 3.9 per cent today, but we also have the underlying or the core figure and that’s what the Reserve Bank of Australia relies upon, and it’s the underlying or the core figure which seeks to take out the variations.


And that’s what takes away from Peter Costello and John Howard their banana alibi or their drought alibi or their petrol alibi because when you look at the core inflation figure, it’s at three per cent—three point something per cent—that’s at the top end of the Reserve Bank’s two per cent to three per cent inflation range.


And the reason the new Governor of the Reserve Bank and the Reserve Bank itself for some time has been drawing attention to the worry about inflation, and as a consequence increasing interest rates, are those core deficiencies, lack of investment in the education, skills and training of our workforce and lack of investment in infrastructure, and these are the things which are causing productivity improvements to go by the wayside, and that’s the main cause, if the Reserve does increase rates again, that that will occur.


GARY WILKINSON: But there are so many figures here and so many variations of figures and interpretations of figures. You just said that core inflation was three per cent. The figure that we had quoted earlier was 2.6 per cent, which is reasonably under the RBA’s three per cent cap, isn’t it?


STEPHEN SMITH: No, the figure which the Reserve Bank will rely upon for the purposes of its meeting in a couple of weeks time, when it thinks about interest rates, will be a three per cent underlying or core inflation figure. That’s what they will work off. So there’s no mystery about that figure. That is the Reserve’s figure itself.


We know that the range the Reserve looks at is two per cent to three per cent and so no surprise why commentators are saying that there is an expectation in the marketplace—by commentators—that we may be the recipients of another increase in interest rates. That will put more pressure on Australian families to make ends meet.


Interest rates going up, inflation going up, high cost of petrol, and in today’s headline inflation figure, we see effectively high cost of food or fruit and, again, one of the reasons that you’ve got a high cost of food or fruit is transport infrastructure problems. So the underlying or core issues: why have interest rates gone up in the past, why might they go up again if the Reserve determines accordingly? Complacency and neglect by the Howard government, not putting its shoulder to the wheel and investing in the long-term productive things that our economy needs: skills, infrastructure.


They have complacently and arrogantly neglected our economy and relied upon a resources boom to China and not done the hard work. And the only people that will suffer as a result of that will be working Australians, and that presents a great danger to our long-term productivity and our long-term prosperity.


GARY WILKINSON: Don’t the state Labor governments have to shoulder some of the blame when it comes to the question of the infrastructure?


STEPHEN SMITH: Well, again, John Howard and Peter Costello, for the first 10 years they are in office, said, ‘Well, infrastructure has got nothing to do with us. We just happen to be the Commonwealth government.’


Everywhere you find a difficulty in the economy, John Howard and Peter Costello will find an alibi or an excuse. If it’s not the states it’s the drought; if it’s not the drought it’s cost of petrol from the Middle East. They will not accept responsibility for the fact that they have—for the last 10 years effectively on the important long-term investments in our economy: training, education, skills, innovation, research and development, infrastructure—they have done nothing, and all of those criteria, all of those important economic aspects have all effectively gone backwards, just as our trade performance has.


We are now into effectively our fortieth-odd consecutive month of trade deficits. We have got half a trillion dollar foreign debt. We have got a lower share of world trades since figures were collected, and all of the important things of [inaudible] manufactures all products, we’ve fallen back. So across the economy you see a whole range of long-term warning signs, all of which have been ignored and neglected by the government. And I won’t be surprised if the government finds another alibi or another excuse.


It’s about time they started accepting responsibility for the fact that Australian families are now under significant financial pressure, and there are long-term threats to our economy, which they are doing nothing about.


GARY WILKINSON: Stephen, another issue, briefly, but no less important. The Fair Pay Commission tomorrow delivers its minimum wage decision. What do you expect?


STEPHEN SMITH: Well, it’s the first decision by the Fair Pay Commission. When the government took away the minimum wage fixing powers from the independent umpire—the Australian Industrial Relations Commission—it also changed the legislative requirements. There’s no longer a requirement that the minimum wage be fair and there’s also no longer a requirement that the minimum wage pay attention to inflation. So I hope whatever figure the commission comes up with that it’s a fair figure. And I am also fully expecting that one of the things we’ll find from the government will be somehow trying to say that if you give a modest increase to the nearly two million Australian employees, who are entirely dependent upon the minimum wage, that if you give a modest increase to them, that will somehow add to wage pressure and somehow add to inflation or interest rate pressure.


The truth is that in the wages area, where the pressure is coming, is in those areas where we’ve got skills shortages—and that’s not low-paid employees. So I hope that the commission gives a fair amount to Australia’s low-paid employees and we will be very interested in what they actually recommend tomorrow.


GARY WILKINSON: And just one more—the ACTU congress has wrapped up this afternoon. What’s the mood between Labor and the union delegates? How did they take to Kim Beazley’s warning that the won’t have the tail wagging the dog?


STEPHEN SMITH: Well, I think it was a successful congress from the labour movement’s point of view generally. I thought it was a very successful congress for Kim Beazley. I was there yesterday and again today. The feedback that I got was that the delegates very much appreciated his contribution. They understand when he says that in the end he is the bloke who is going to make the decisions. And I think it is also important to just understand that Mr Beazley went there and said that I want Labor to have a fair and balanced industrial relations system that enables our economy to be modern and flexible and competitive. As soon as you say ‘fair and balanced’ then you are required to listen to more than one point of view, and that’s the great mistake that John Howard has made. He’s only listening to one point of view. So Kim Beazley wants to make sure that all views are taken into account, whether it is unions, business, industry, Australians sitting around their kitchen table. And in the end, we will make sensible decisions which will see a fair and reasonable and balanced system, which will be good for employees, good for employers but, most importantly, good for our nation. It will enable our prosperity to continue but also ensure that people get a fair share of that prosperity, which is not occurring under John Howard.


GARY WILKINSON: Stephen Smith, thanks for giving us so much of your time.


STEPHEN SMITH: Thanks very much.