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Monday, 5 March 2001
Page: 24894


Ms BURKE (12:50 PM) —At the outset, I wish to commend the Governor of the Reserve Bank, the Assistant Governor Financial Systems, and the Assistant Governor Economics for not only giving so willingly of their time to the committee but for the extra effort of travelling to Wagga Wagga for two days. I will admit I had reservations about the need to have the hearing in a regional centre but I am happy to say the experience was very successful and I would encourage other committees to get out there.

As always, the hearing provided an excellent opportunity for the Governor of the Reserve Bank to articulate the direction of monetary policy in Australia and to attempt to make the internal workings of the board transparent. Given the speculation in the press about the machinations of the board's process and calls for greater reporting of board proceedings, it was a sad indictment on most of the financial press that they saw no need to travel outside their comfort zones to report more accurately on the actual proceedings. As Sid Marris rightly pointed out in the Australian, the audio link could not do full justice to the scene.

It would be extremely interesting to have the Governor of the Reserve Bank before us today to examine the government's current triple somersault on fiscal policy for it was only three short months ago that the governor in his opening statement before the committee said:

On the fiscal policy, the need to more than compensate consumers for the imposition of the GST ensured that it moved in an expansionary direction between last financial year and the present one. Again, I think we can argue that, even though the budgetary position will remain in surplus for medium term purposes, the current stance of fiscal policy is not imposing a contractionary influence on the economy at all.

The question to be asked of the governor is, will the one-sided bidding war the government has embarked upon have an expansionary influence on the economic outlook? Is the present fiscal setting of the government going to undo all the good work of the Reserve Bank in avoiding the boom-bust cycle? Sadly, we will have to wait until November to get an answer, and by then it may be too late.

On this question of fiscal policy we have been getting mixed messages from the governor. In November 1999, the governor told us that we need to counterbalance big deficits in early years with large surpluses in later years following large expansions. In May 2000 he told the committee that this was extremely difficult to achieve in a democracy, as people asked, `Why am I paying all these taxes to the government when they do not even know what to do with them?' Then in December 2000 the governor argued strongly in favour of tighter fiscal policy. He said:

Yes, I would be concerned about a bidding war. I have said that before and I repeat that now, that I would be concerned about it. For all sorts of long run reasons to do with our national savings, our capacity to invest for the future, other than in very weak years, that is, recession years, I think it is important that governments run surpluses.

What is the governor signalling here: that he no longer has a sanguine view of fiscal policy, that he has given up on a government which has a high tax, high spend policy—or is he preparing for the fallout of a government spending war to hold on to government at all costs? Again, I will not get the chance to ask before November, and by then it may be too late.

At the conclusion of the December hearing, I and the majority of press covering the event left the room with the view that interest rates were on hold, that the economy was continuing to grow, albeit at a slower rate, that the US was heading for a soft landing and that there was no interest rate cut on the horizon. The governor expressed the view that the board was happy with the five increases they had previously delivered and when they had been delivered. So, whilst I was not surprised by the rate cut in February—as members know, when you are out there in the community you can feel that things are slowing down—I was bemused by the mixed messages the governor was giving to the committee and the speed of the subsequent rate cut following recent rises. Whilst the governor's appearance before the committee is a crucial element in the bank's transparency and independence, the conflicting messages at hearings and those reported in the press by various board members highlight the need for greater disclosure of the board's processes and information on which it is making decisions. As the Financial Review editorial at the time pointed out:

The bottom line is that private-sector decision making is helped by regular information, particularly if it balances the noises from other sources. Whether it is monthly statements, the release of minutes or more public hearings, it is a legitimate and important subject for debate.

I commend the committee's report and our endeavours to find out more about the actual processes of the board. I am sure my colleague the member for Werriwa will have more to say on this subject.

All the partial indicators to date point to a slowing domestic economy in a post GST period, which undoubtedly will put pressure again on the Reserve Bank to cut interest rates. I am sure tomorrow's meeting will be a very interesting one for the board. All the while fiscal policy is being loosened by the government, so again it would be interesting to hear the governor's view on our economic outlook and the impact of loosening the purse strings. The governor presented a strident view about this at our committee hearing, and I would commend that people read his view in the report.

Another aspect in the report that was very interesting was the Reserve Bank's and the ACCC's report into credit card interchange fees and ATM fees. I commend the governor and his fellow members for the strong view they have taken on this. The committee will be monitoring this with interest to see that they do something about regulating this most serious aspect of bank fees and charges. (Time expired)