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Wednesday, 17 November 2004
Page: 85

Senator SHERRY (2:44 PM) —My question is to Senator Minchin, the Minister representing the Treasurer. Has the government noted the very strong and public warnings by the Governor of the Reserve Bank of Australia, Mr Ian Macfarlane, about the dangers of unsustainable and excessive borrowing by consumers, the lowering of credit standards by financial institutions and the economic risks these pose to the Australian economy? Why is the government continuing to ignore ongoing warnings from Mr Macfarlane, the Governor of the Reserve Bank, and failing to develop policy to assist in managing the explosion of household debt, which as a percentage of household income has almost doubled from 85 per cent to 153 per cent over the last 8½ years?

Senator MINCHIN (Minister for Finance and Administration) —Could I begin by congratulating Senator Sherry on his appointment as shadow minister for finance, but express my sorrow for the way in which his predecessor was treated by his party. I thought Mr McMullan served his party well in that particular role and I think it is regrettable for the parliament that he was not able to reach an understanding with his leader as to how he might serve his party and was kicked onto the back bench. Nevertheless, I congratulate Senator Sherry and look forward to his contribution. I welcome the Labor Party's expression of interest in engaging in the economic debate and asking questions on the economy, which is sensible and appropriate—and we welcome it—but there is a lot of work that the Labor Party has to do to restore its nonexistent credibility on the economy.

With respect to the statements made by the Reserve Bank Governor, to which Senator Sherry referred, in his speech to CEDA last night, what Mr Macfarlane actually said was directed to the financial institutions of this country, indicating to them, from his office as Governor of the Reserve Bank, his concern that as the housing market slows down—a movement which we welcome and which we have said we would welcome—the banks must adjust to that slowdown and must not become aggressive in their lending policies. We have been making exactly the same point for some time. We welcome Mr Macfarlane's comments to the financial institutions of this country. We hope that they take close heed of what he said last night.

We should also put those comments in context. We welcome very much the slowdown in the growth of credit that has occurred, but we also note that the extent to which Australians are willing to borrow funds to invest in homes and other assets is a function of the extraordinary confidence that the Australian people have in the state of the Australian economy and in our management of the economy, which of course was reflected in our result on 9 October. Inevitably when confidence levels are high, people have confidence to borrow. They also do that in an environment where interest rates are at relatively low levels. The Treasurer and I and other members of the government have constantly been seeking to ensure that Australians understand the importance of not extending themselves when it comes to their borrowings and that the lending institutions act responsibly and sensibly in their lending policies. Therefore, we welcome very much what Mr Macfarlane had to say.

Senator SHERRY —Mr President, I ask a supplementary question. Given current household debt as a percentage of income has almost doubled from 85 per cent to 153 per cent over the last 8½ years, why has the government's policy failed so dramatically to manage the explosion in this household debt?

Senator MINCHIN (Minister for Finance and Administration) —Clearly Senator Sherry has a bit more to learn about economics before he engages in the debate fully because you have to look at both sides of the ledger. The asset base of Australians and their capacity to service their debts have both improved extraordinarily in the 8½ years in which we have been in office. The reason why Australians voted so overwhelmingly for our return is that they know that their asset base, their real incomes and their capacity to service their debts have improved extraordinarily. They are in a position to acquire more debt because they can service that debt. Household balance sheets are in fact in extraordinarily good shape.