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Tuesday, 15 March 2005
Page: 34

Senator COOK (2:48 PM) —My question is to Senator Minchin, in his capacity as Minister representing the Treasurer. I refer the minister to comments last week by ANZ chief economist Mr Saul Eslake identifying the role of the government’s $66 billion pre-election spending spree in driving up interest rates. Is the minister aware that Mr Eslake has calculated that discretionary government spending last year rose by more than 10 per cent in real terms? Can the minister confirm that this is the largest increase in discretionary government spending in over 20 years? Does the government now accept the views of leading independent economists like Mr Eslake that its spending binge has created inflationary pressures in the economy which forced the Reserve Bank of Australia to increase interest rates?

Senator MINCHIN (Minister for Finance and Administration) —No, I do not accept that at all. Indeed, the Reserve Bank Governor has made it quite clear in many speeches and many statements that the Reserve Bank’s position on interest rates and its recent one-quarter of a per cent movement had absolutely nothing to do with the fiscal policy of the government. As we have repeatedly said, the Reserve Bank Governor openly says that when he goes to international meetings of governors of reserve banks and other treasury meetings he receives comments of envy from those representatives about the fact that he comes from a country with such a strong fiscal position. He has made it quite clear that the strong fiscal position of this government is such that it is not putting any pressure on interest rates.

In the simplest of terms, that is reflected in the fact that we continue to run strong surpluses, which the party opposite have criticised. When we have reported strong surpluses in the past, we have had opposition spokesmen and women frequently come out and say: ‘This is dreadful, this is shocking. The surplus is far too big. They should have spent it on X, Y or Z.’ Now, of course, they come out and say, ‘No, you are spending far too much and it is putting upward pressure on interest rates.’ That is a nonsense and it is not anything that is accepted by the RBA Governor. He made it clear why he thought it was appropriate to move interest rates up by one-quarter of a per cent. If you read that statement, it is quite clear that it was based on reasons that had absolutely nothing to do with the fiscal position of the government.

In relation to this figure of $66 billion, that is over a five-year period over which time the federal government will be spending some $800 billion to $1,000 billion. We have a budget now of over $200 billion a year. The paradox in all of this is that, of the $66 billion which those opposite profess to complain about, $19 billion takes the form of direct tax cuts and a further nearly $17 billion takes the form of increases in family tax benefits. So more than half of the $66 billion is actually tax cuts and family benefits. Then, having complained about that, the opposition comes in and complains that taxes are too high. So on the one hand we are spending too much and deteriorating the budget position but on the other hand we need tax cuts because tax is too high. It is a nonsensical position. It means that the opposition still has no clear, coherent position on fiscal policy or management of the economy, and we all ignore what it says for that reason.

Senator COOK —I point out that the minister never answered my question at all. I asked whether he agreed with the views of independent economists, not someone appointed by the government to the Reserve Bank’s position. I ask a supplementary question. Is the minister also aware of comments by Mr Eslake that, in order to reduce the inflationary pressures created by government spending, ‘the government needs to find some “non-core” promises and break them’? Can the minister advise the Senate whether the government intends to take this advice? If so, what non-core promises does it intend to break? Alternatively, will the government make home borrowers bear the cost by forcing the Reserve Bank to further increase interest rates?

Senator MINCHIN (Minister for Finance and Administration) —We are not going to break any promises. We will honour all of our promises to the electorate in full and we will do so in such a way as to preserve the strong fiscal position of this government, returning surplus after surplus. Any dolt can understand that if you are taking more out of the economy than you are putting in by way of surpluses then you are reducing the upward pressure on interest rates. It is an absolute fact of life that if you are running surpluses then the federal government is contributing to the savings of the community and not doing anything that puts pressure on interest rates. The government will continue to adopt that very strong position.