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Monday, 7 March 2005
Page: 23

Senator SHERRY (2:10 PM) —My question is to Senator Minchin, representing the Treasurer. Is the minister aware that the Reserve Bank media release on 2 March 2005, explaining its decision to increase interest rates, stated:

Over recent months, it has become increasingly clear that remaining spare capacity in the labour and goods markets is becoming rather limited.

This is now starting to result in stronger inflationary pressures.

Isn’t it the case that, as early as May 2001, the Reserve Bank of Australia was talking of capacity constraints in the national economy? Why has the government done little since 2001 to respond to the Reserve Bank’s warnings on capacity constraints and the risk they pose to inflation?

Senator MINCHIN (Minister for Finance and Administration) —I think one of the best decisions this government made was to take the Reserve Bank out of the pocket of former Prime Minister Paul Keating and to establish its independence and allow it to have carriage of monetary policy. The success of that decision is reflected in the fact that we have had very low inflation compared to our predecessors and, of course, much lower interest rates than our predecessors had. These are two of the great successes of our government: low inflation and relatively low interest rates.

I think what the Reserve Bank was doing last week was indicating, as I described on Lateline, that a light touch on the brakes by a quarter of a per cent movement in rates was sensible in the light of the potential for emerging inflationary pressures and its responsibility to keep inflation between two and three per cent. It quite properly did point to the fact that, after 14 years now of economic growth and sustained growth much higher than in the OECD as a whole, we are reaching limits in terms of Australia’s capacity in a few areas. Therefore, as I say, a light touch on the brakes will ensure that the strength of the Australian economy is not such that it will spill over to inflationary pressures.

The question of whether one should have foreseen the sorts of capacity constraints that the Reserve Bank points to is something that all governments in Australia—and the private sector itself—have to reflect upon. Senator Sherry is right to point out that the Reserve Bank has been indicating that this as an issue. As I said in my previous answer, it is the states, under our Federation and our Constitution, who have primary responsibility for the majority of Australia’s infrastructure. To the extent that we are involved in infrastructure, we support the states in their responsibility in relation to roads and we have taken some responsibility in relation to rail. But we do not own any ports. The states are responsible for ports; they are responsible for energy, water, gas, electricity et cetera—and these are the areas that are in need of reform. To the extent that we have attempted to ensure the reform necessary to give the flexibility of the Australian economy to meet the demands upon it, we have been opposed by those opposite.

Senator Sherry would have a lot more credibility to make this case, if it were not for the fact that for the last nine years the Labor Party have opposed every attempt we have made to reform the Australian economy, whether it has been in industrial relations, ensuring a return to surpluses or constraining the growth of government expenditure in key areas. In every area you can think of—including tax reform—the Labor Party have opposed us. They have opposed every attempt we have made to ensure that the Australian economy is sufficiently flexible to meet potential constraints upon growth and development. While this is an issue that all Australians must focus upon, the opposition has absolutely no credibility in raising it.

Senator SHERRY —Mr President, I ask a supplementary question. After 10 years, blame someone else for your problems! Isn’t it also the case that the Reserve Bank has mentioned capacity constraints on 10 separate occasions since May 2001? Can the minister advise why it has taken the Howard government until the February 2005 RBA statement—four years later—to finally take any notice of the nation’s looming infrastructure crisis?

Senator MINCHIN (Minister for Finance and Administration) —This government can do only what the Senate allows us to do. Fortunately, from 1 July we will have a majority, but for the last nine years we have had a Senate led by this lot who oppose everything we attempt to do. On the other hand, we have attempted—

Opposition senators interjecting—

Senator MINCHIN —Despite the objections of the mob opposite, we have substantially increased our investment in road and rail, as I said in my answer to which they were not listening. Through AusLink we have invested $12½ billion in road and rail infrastructure in response to the very things that the Reserve Bank has been saying for the last few years. We have responded to them with substantial investments in infrastructure.