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Wednesday, 15 October 2008
Page: 9210


Mr BOWEN (Minister for Competition Policy and Consumer Affairs, and Assistant Treasurer) (3:42 PM) —The government and the opposition agree that we are facing extraordinary times which will affect Australia. The extent of the impact, of course, depends on what pans out over coming weeks and months in the international financial scene. It also depends on the response of Australia’s elected government and our independent regulators. As we have said, as the opposition agrees, and as many independent commentators have pointed out, Australia is well placed to get through this crisis. The reasons for this are well known. Our trading links to China and the strength of our terms of trade will see us in a good position, as will the strength of our banks. Of the 20 banks in the world that are AA rated, four are here in Australia. Of the 12 big banks around the world that are AA rated, four are here in Australia—a very high proportion. The World Economic Forum’s Global competitiveness report ranked the soundness of our banks as second in the world. And our prudential regulation is well respected. Indeed, our reporting standards have been ranked third in the world.

Of course, the strength of our budget surplus is another reason. It has provided the flexibility for the government to respond to these extraordinary times. Some have argued that the government should not have built up the surplus as high as it did in May and that the Reserve Bank should not have dealt with the inflationary pressures that were apparent earlier in the year. I would submit that that is a misdirected claim.

It is the responsibility of the government of the day, and of the Reserve Bank and other regulators, to deal with the economic challenges of the time; and the Reserve Bank has been satisfied that, because of a range of factors, the unacceptably high inflation is projected to fall to acceptable levels. In the minutes of its last meeting, the Reserve Bank indicated that, due to the obvious international circumstances, that reduction was expected to occur more quickly than they had previously expected, but they had been expressing the view for some time that inflation, which is particularly high—the highest it has been in 16 years—was expected to fall to more acceptable levels.

It is a good thing that the government and the Reserve Bank dealt with inflation. We would not have wanted to go into this crisis with the Reserve Bank concerned about inflation. The government agrees with the Reserve Bank that inflation needs to be tackled whenever it rises. The member for North Sydney has questioned this. He has said in the past that inflation is only a crisis when it reaches Weimar Republic levels, post World War I Germany levels, of 1,000 per cent, for example. He attacked the Reserve Bank for increasing interest rates last year and this year, saying that the Reserve Bank had a case to answer for. Can you imagine, Madam Deputy Speaker, what would have happened if we had gone into this crisis without having dealt with the inflationary pressures on the Australian economy? Inflation eats away at the competitiveness of our economy and, of course, it affects the living standards of Australian families as they deal with increased pressures.

The member for Higgins used to be fond of describing the Australian economy as a highly calibrated racing car. He used to say who was driving the car was very important. He used to say a little mistake can cause a big problem as you are driving such a fast car. And he is right; it is not a bad point to make. What the Prime Minister and Treasurer have shown in recent days and weeks is that they are indeed very good drivers of that racing car. We can all remember the advertisements at the last election and the election before. Remember the ones at the last election, that ‘Labor is full of union officials, full of union thugs’? They said: ‘You wouldn’t put them in charge of the economy; can you imagine what would happen? They are not up to the job.’ I think the Australian public passed judgement on those advertisements then and they will pass judgement on them again when they see the way the Australian government has handled these very difficult international times. Then there were the ads for the election before, which said that interest rates under a Labor government would go up and would always be higher under a Labor government than under a Liberal government. I think the Australian people will pass judgement on that at the next election as well.

But it is not how you handle the good times that is the mark of a good economic manager. How you handle a boom time is not a test of economic management. The true test of a good economic manager is how you handle the difficult times—how you handle the shocks to the Australian economy, how you handle the great influences on the Australian economy that come from the global economic situation. And it is appropriate to recap just how difficult that global situation is. The IMF has said that this is the worst financial crisis since the Great Depression. I note that the Deputy Leader of the Opposition, in an attempt to score political points, criticised the Prime Minister for using those words, when he was in fact quoting the International Monetary Fund. He was quoting the IMF. This is not a time for the Deputy Leader of the Opposition to try and score cheap political points when the Prime Minister is merely quoting a highly respected international economic body. This is the same body which has estimated that losses and write-downs on loans and securitised assets will reach US$1.4 trillion.

There is a great deal of nervousness in financial markets around the world. Banks and financial institutions are very reluctant to lend to each other because, quite frankly, they have no confidence that the institution they lend to will be in a position to repay the money when the time comes. That has consequences for international markets and consequences for Australia. We are seeing a drying-up of credit and we are seeing increased costs of credit, as the spread between official rates and commercial rates increases. We see increased costs around the world and, of course, increased costs here as the banks have passed on those costs. People and organisations that were used to getting credit have found it difficult to obtain. I recently saw one report which said that 25 per cent of businesses in Australia were having difficulty getting credit. That is a very concerning figure: 25 per cent of businesses having difficulty in obtaining the necessary credit to expand their business. They are figures that we have not seen since recessionary times and they are a concern.

That underlines the importance and the appropriateness of the actions taken by the government in recent days and weeks—firstly, guaranteeing Australian deposits and guaranteeing wholesale lending to Australian deposit-taking institutions. Those two actions do two things. First, they assure the Australian people that they can be confident that their deposits are safe. It was Franklin Delano Roosevelt who said:

 … the only thing we have to fear is fear itself.

Australians’ fear of losing their deposits could have been a major problem for the Australian economy. If the Australian people had begun to question the security of their savings and taken the obvious action as a result, it would have been very damaging indeed for the Australian economy. So the reaction of the Australian government is designed to reassure Australians that their deposits are safe and guaranteed by the government.

Second, by guaranteeing wholesale lending, Australian financial institutions are now able to compete for credit on a level playing field. Other governments around the world had guaranteed their financial institutions, which gave them an unfair advantage in seeking that credit. We could have seen, if the government had not acted strongly and quickly and decisively, a further drying-up of credit in the Australian market. But that will not be the case now, as the government has ensured that Australian institutions are able to compete on a level playing field.

Of course, the deposit guarantee was first recommended by the royal commission into the collapse of HIH. They recommended a financial claims scheme with guarantees of up to $20,000 back in 2003. I noticed the Leader of the Opposition yesterday claiming that their government would have done it last year, but the member for Higgins was concerned it would scare the markets if they did. That does not really explain why the then government did not do it when it was recommended by a royal commission. A royal commission recommended a financial claims scheme, and the previous government, quite frankly—respectfully—negligently refused to accept that recommendation. I do not want to belabour the point, but the Leader of the Opposition speaks with a forked tongue when he says ‘the previous government was getting around to it’ and ‘the member for Higgins would have done it when the time was right’, when they had a royal commission recommendation from 2003 to introduce a financial claims scheme.

The other action taken by the government yesterday was the very important stimulus package. All the countries in the Group of Seven, the biggest and most developed countries in the world, are forecast to experience zero or negative growth over the coming period. The international circumstances will affect Australia. Despite the fact that Australia is better placed than any other developed country in the world to get through this crisis, we will be affected. So the prudent and responsible thing for the Australian government to do was to take steps to stimulate the economy, to get in front of the game—not to wait until economic growth declined, not to wait until it was too late, not to wait until we needed an emergency retrospective stimulus to the economy, but to make sure that we continue to take actions ahead of the rest of the world, to make sure that the Australian economy continues to grow. That was the prudent thing to do and that is what we did yesterday.

The previous government liked to spend its way out of a boom. They turned Keynes on his head and said, ‘We’ll spend our way out of the good times.’ That was the previous government’s approach. They would let government spending grow by five per cent a year, even in the middle of a boom, and fuel those inflationary expectations. We take a slightly different approach. We take the approach that a government spending stimulus package is appropriate when the economic circumstances warrant it. If the time when the world is going through a downturn is not the time you have a stimulus package, I am not sure when it is. You certainly do not need one when the economy is booming. But that is what the previous government used to do.

Yesterday, we saw that stimulus package receive, we thought, bipartisan support from the opposition. But today and yesterday we saw the Leader of the Opposition authorise a series of questions in the House which questioned that bipartisan support. We have seen the Leader of the National Party in the Senate say that Australian seniors and families should not receive a lump sum, because they might waste it. They do not deserve it; they might waste it. They might spend the money ‘up against a wall’, he said. Or they might spend it on Christmas presents that we will see strewn around the floors of Australian houses with ‘made in China’ on the back of the packets. What an offensive thing to say! That is hardly bipartisan support.

We all know that the Leader of the Opposition is not what we call a conviction politician. We all know that he does not stand up for what he really believes in. We all know that he does not come in here and say: ‘I know this will be unpopular, but here is what I am going to say to the Australian people. I am going to call it as it is.’ We know that he—being a person that used to work in the financial markets—completely understands the funding pressures that the Australian financial sector has been under. But he chose to make a populist attempt to call for the banks to pass on any interest rate reductions, instead of taking the responsible approach that the Prime Minister and Treasurer took saying that ‘as much should be passed on as possible’. But, of course, the Leader of the Opposition chose to take a populist approach, which is particularly irresponsible in these times of an international crisis.

We all know the Leader of the Opposition thinks that cutting the petrol excise is bad policy. He has said, ‘That is bad policy,’ but now it is his policy. Now we are seeing the Leader of the Opposition make cheap populist points out of this crisis, on the one hand saying that he supports the package and on the other hand criticising the package at every opportunity.

The Australian economy faces difficult times. It faces an international crisis which may get worse before it gets better. The only thing certain about this crisis is its fluidity. Any person who predicts that this crisis has ended or is about to end is taking a huge gamble. The Australian government does not take the view that we can rest on our laurels and that the budget surplus, the actions of the Reserve Bank and our trade links with China will get us through. We take the view that decisive action is necessary and that things like the bank deposit guarantee, the guarantee of wholesale lending and the stimulus package announced yesterday are not only appropriate but the only responsible course of action that can be taken. I call on the opposition to take a similar, responsible and decisive course of action in these very difficult times.