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Thursday, 29 October 2009
Page: 7640

Senator WILLIAMS (3:12 PM) —I rise to make comments on the questions asked by my colleagues Senator Fifield and Senator Joyce. On 24 June, in the Senate, I said, ‘If the government continues on its spending spree it will put upward pressure on interest rates.’ That is exactly what is happening. It is a simple situation. There are two levers on the economy. One is fiscal policy, which we know as government spending, and the other is interest rates—or monetary policy, as the so-called experts call it.

When the global financial crisis hit 12 months ago both levers were put on fast forward. We saw a 4.25 per cent reduction in official interest rates from 15 September last year by the Reserve Bank and we saw this huge spending spree that Treasurer Swan and Mr Rudd took this country on. Both levers were put on fast forward. Now it is clear that the Australian economy is in far better shape than what the economic experts and Treasury forecasters believed. And it is in good shape because of the way we went into this financial crisis. The coalition left the federal government in a debt-free position, with billions in the bank and with low unemployment, at around four per cent. Australia was unique. No other country in the world was going into this global recession debt free, but Australia was. What has happened? The spending has continued and now the economic indicators are clear. Just a few weeks ago, there was a 0.25 per cent interest rate rise by the Reserve Bank, taking it to 3.25 per cent. And now the bookmakers are setting the price for next Tuesday’s Melbourne Cup on interest rates. Will it be a quarter of a per cent or will it be half a per cent?

My younger son, Thomas, is currently looking at buying a house. Interest rates are around 5½ per cent for home loans. I said to him, ‘Run your cash flow at an eight per cent interest rate, because that’s what you could be facing if this government keeps spending the way it is.’ My advice to my young fellow just last week was, ‘Do your figures at eight per cent; that’s what you could be facing.’

But there is another part of this interest rate situation that people have not really focused on, and that is a rising Australian dollar. Senator Joyce asked a question today: what are the interest rates in America? They are one per cent. There are no rising interest rates in America, Europe or around the world—only in Australia. The further the interest rate gap grows between the United States and Australia, the more investment in Australia as those investors chase a higher return on their money and the Australian dollar goes up and up and up. The ramification of that is simple: the nation’s income is reduced. Whether exporting gold, iron ore, coal, beef or wheat, it means fewer dollars coming into our nation. So, in effect, what we are doing is reducing our nation’s income.

This has been brought about by higher interest rates and by the federal government’s spending—which is assisting and promoting higher interest rates. And it is regional Australia that that has a negative effect on, because the dollars are not coming into those communities where the exports are derived from and those regional communities are missing out on the money. That is the effect. It might suit many people in the city areas who buy a lot of imported products. Of course, we import a lot of products. As I have said before, trade is about exporting and importing. It makes imported products cheaper, but it also certainly makes exports cheaper, and we are losing income. That is a problem when the interest rates are going to keep rising in Australia. There is no talk about that stabilising. It is our exporters who will suffer the most.

Let us look back at what Prime Minister Rudd said. He said he was a fiscal conservative—yeah, right! He inherited a debt-free nation with billions in the bank and, all of a sudden, we are running an annual budget of $58 billion in the red. He also said that he would put downward pressure on grocery prices, that he would put downward pressure on fuel prices and that he would fix our hospitals—that the buck would stop with him if they were not fixed by the middle of 2009. But yesterday the Senate had to face a situation with respect to hospitals where the government was trying to do away with any sort of cataract surgery, to remove the incentive for people to carry out their operations—putting more pressure on our public health system. We know that Mr Rudd has not delivered on any of the promises he made prior to the 2007 election. What I find so frustrating about his spending spree is that all he is doing is filling a gap for the state governments. Buildings in schools and those sorts of capital works are not going to improve our economy or lead us to earning more income.