Senator FIFIELD (Victoria) (1.21 pm)-If you watch good leaders, you will soon notice a common trait among them is their ability to stay positive and to motivate their teams. A motivated team in a positive frame of mind performs better because it expects to succeed and works to turn those expectations into reality. Likewise, a leader who is negative, downtrodden and pessimistic about their team’s prospects will impact negatively on performance. It is the same with a Treasurer and an economy. Unfortunately, we have a Treasurer who is negative, we have a Treasurer who lacks the skill set to hold that office. Treasurer Swan is intent on constantly talking down the Australian economy.
The most egregious example is Mr Swan’s conduct on the issue of inflation. Any economist, or indeed any first-year economics student, will tell you that inflation is driven by expectations. This is because inflation expectations are in a sense self-fulfilling. If consumers think inflation will rise, they will more readily pay higher prices for goods and services. If businesses think inflation is rising, they will act by lifting their prices to cover anticipated extra costs. Thus inflation expectations become an inflation reality. The Chairman of the US Federal Reserve, Ben Bernanke, said recently:
Undoubtedly, the state of inflation expectations greatly influences actual inflation.
That is why Mr Swan’s comment that ‘the inflation genie is out of the bottle’ was so reckless and so irresponsible. Mr Swan and Mr Rudd say they want to fight a war on inflation, but their approach is akin to donating ammunition to the enemy. The Reserve Bank of Australia’s latest quarterly Statement on monetary policy confirms the danger:
A further risk is the possibility that inflation expectations could rise, which would make the reduction in inflation more difficult to achieve.
It is not only inflation expectations that are on the increase, thanks to Mr Swan, but the margin between the official cash rate and the mortgage rates of the domestic banks. The big banks aced Wayne Swan while he was still warming up in the locker room. Wayne Swan’s lame response to the first flurry of domestic bank rate rises earlier this year demonstrates a lack of mastery of the Treasury portfolio for which Australians with mortgages are paying and will continue to pay. Mr Swan failed his first test as Treasurer. The major banks had long wanted to widen the margin between the official cash rate set by the Reserve Bank and their own mortgage rates. The American sub prime crisis which started some eight months ago was the latest pretext. The banks had only been held in check by the fear of former Treasurer Costello’s response. ANZ chief economist Saul Eslake confirmed this earlier in the year when he admitted the reason the banks have not put up their mortgage rates earlier was because of Costello’s jawboning. A new untested Treasurer arrives and the rates go up. With margins increased, Australians with mortgages will always be paying more than they
should thanks to Mr Swan. The banks won the opening set with Mr Swan 6-0.
Bank behaviour is actually pretty straightforward. The banks will price their products at a level the market will bear and at a level they can sustain politically. An effective Treasurer needs to be respected and feared in equal measure by corporate Australia, particularly the domestic banks. Mr Keating was, Mr Costello was; Mr Swan is not. The banks do not fear Wayne Swan. And why would they? In the weeks following the election Mr Swan was silent on the possibility of mortgage rate rises and then actually defended the National Australia Bank rate rise. Before he would venture out to comment on the ANZ’s rise, he dragged the Reserve Bank and Treasury to Brisbane for a day of confidence building tutorials and greetings. When he finally emerged to say something, it was too little, too late. The horse had bolted.
The fact is the domestic banks were confident they had Wayne Swan’s measure. They knew he was soft, lacked confidence and craved their approval. But it is not the Treasurer’s job to defend the pricing decisions of banks. It is the Treasurer’s job to challenge the banks to justify their decisions. It is his job to cause the banks pause for thought. Perhaps a timely reminder by Mr Swan to the banks as to why we have the four pillars policy would have been enough, but that may have required yet another round of regulatory briefings from officials.
Treasurers have many formal powers, but often their greatest power is the force of their personality and, sometimes, the bully pulpit. An example of this persuasive power occurred several years ago when one of the big four banks decided to retrospectively devalue its expensive and unsustainable credit card loyalty program. This decision, which was met by justified customer outrage, was promptly condemned by then Treasurer Costello and referred by him to the ACCC for investigation. The bank concerned then immediately reversed its decision, reinstating all loyalty points. The decision was reversed not because of fear of action from the ACCC, nor because it feared potential legal action, but because of the massive reputational damage an irate Treasurer can inflict.
Contrast this with Wayne Swan, who gave the green light to the banks to increase their rates separate from an RBA decision, and then gave the green light to the banks to increase rates above RBA movements. Labor have clearly failed to honour their election undertaking to tackle prices, whether it be groceries, petrol or mortgages.
Mr Swan promised to be the cop on the beat. Instead, he is shaping up as the best friend the banks have ever had. And if Wayne Swan can’t handle the domestic banks, he has no hope of defending consumer interests in other spheres like telecommunications. What is Labor’s plan to address pressure on inflation and interest rates? Mr Rudd returned to Perth earlier this year to deliver his first headline speech as Prime Minister. In it he outlined his five-point plan to tackle inflation. We all listened with bated breath. After all, for a year prior to the election we had been waiting for Mr Rudd to outline his economic plan for Australia. None came. In government, all we have heard is a plan to hit seniors and carers and a tax reform plan copied from the former government. So what is Mr Rudd’s grand five-point plan?
Point 1 is a target budget surplus of 1.5 per cent of GDP. Well, it sounds like a terrific idea. But think back. Labor racked up $96 billion in debt when they were last in government, and after a decade of Labor state governments racking up their own debt, Labor have suddenly decided to become converts to budget surpluses. The coalition delivered 10 budget surpluses, and whilst we were busy putting those budgets in surplus, looking for savings measures, Labor were opposing us every step of the way. So I think we can take with a very large grain of salt Labor’s new-found interest in budget surpluses.
Point 2 is boosting national savings. So far, all we have heard is about the home savings accounts and, unfortunately for Australian taxpayers, we have also heard about Labor’s plan to hoard budget surpluses without any further tax relief for Australian taxpayers. The Australian of 8 February 2008 reported that Labor plans to hoard surpluses by quarantining them with either the Reserve Bank or the Future Fund. The article states:
Wayne Swan has called an end to the Howard government policy of returning excess budget surpluses as tax cuts …
So, Australian people, hear loud and clear: no more tax cuts under a Labor government. Wayne Swan is quoted as saying:
We will be banking any upward revisions to revenue, if they occur …
The coalition has contributed much to encouraging a national savings culture. We all agree that it is a good and positive thing. We introduced a super co contribution scheme to encourage people to add to their superannuation, and then we enacted the most revolutionary reform to superannuation in Australian history, with the complete abolition of taxes on the end benefits drawdown from taxed super funds. These two coalition measures encouraged an enormous increase in national savings, with superannuation assets rising from around $200 billion in 1995-96 to around $1,000 billion in 2005-06. The coalition also established the Future Fund, which Labor has already promised to raid.
Point 3 is to act decisively and effectively on the skills crisis. Labor’s contribution in this area so far has been twofold. Firstly, they are under pressure from their union backers to axe the 457 skilled migration visa program. Secondly, Labor state governments closed down tech schools, increased up-front TAFE fees and pursued a homogenous, one-size-fits-all school system. In doing so, they devalued trades education, and opportunities to learn a trade were diminished. The coalition in government lifted the total number of Australian apprentices by more than 250 per cent, established 28 Australian technical colleges and promised to build another 100 if re-elected. Yet Labor, in their wisdom, will hand these tech colleges back to the same state governments that closed them in the first place, so I hold very grave fears about Australian technical colleges.
Last month I was in Dandenong at an automotive manufacturing plant with the Leader of the Opposition and the shadow minister for education, and I heard firsthand from local business leaders just how important it is for them to access skilled workers. These business leaders, including the South East Melbourne Manufacturers Alliance, which represents the manufacturing sector in the Dandenong area, warmly welcomed the coalition’s announcement last November that an Australian technical college would be built in the Dandenong area. Naturally they are extremely disappointed that under Labor this college will not be built, despite Mr Rudd’s rhetoric that he doesn’t want ‘to be Prime Minister of a country that doesn’t make things anymore.’
Point 4 is dealing with infrastructure bottlenecks- again, an area in which Labor has an appalling record. Perhaps the worst example is that of the Dalrymple Bay coal terminal in Queensland. In the course of last year there were occasions when up to 40 or 50 ships were waiting offshore to load coal for export but were forced to sit and wait, thanks to the port’s inefficiency. The coalition in government offered to take over the port from the Queensland government, but was rebuffed. In time-honoured Labor tradition, Mr Rudd’s solution is to set up another glorified committee-this one, Infrastructure Australia. For a bloke who likes to proclaim ‘the buck stops with me’, Mr Rudd sure likes to outsource. And what sort of infrastructure policy, and indeed what sort of encouragement to national savings, is Labor’s plan to force superannuation funds to invest in infrastructure? It must send a shiver down the spine of those near retirement to know that Labor plans to grab their money and throw it at a pet project of some sort.
Point 5 is boosting workforce participation. The coalition has an outstanding record when it comes to workforce participation. Labor’s plans to take it further remain to be seen, other than delivering on the tax cuts package that they copied from the coalition. But we do know that for there to be workforce participation, there needs to be jobs-something you do not hear Labor talking about anymore. Furthermore, Labor refuse to guarantee that their inflation-fighting plan will not lead to an increase in unemployment. A case in point: I picked up the front page of the Age on 4 March this year and read an article headed ‘PM told: you must cut growth to beat inflation’. This is what it had to say:
An economist who is set to become a key adviser to Kevin Rudd has warned that Australia will have to sacrifice economic growth to beat inflation.
That is code for ‘unemployment must rise’. So there it is: Mr Rudd’s approach to managing the economy is to cut growth and hike unemployment. They actually have the same plan to solve the skills shortage. The government say that this is the sacrifice that we have to make in order to fight inflation, but let us look at the facts. The coalition presided over 11 years of the longest economic expansion in Australia’s history. At the same time inflation, be it the headline rate or any of the underlying measures, averaged two and a half per cent over the cycle for the entire period of the coalition’s term in office. We were able to contain inflation as well as achieve record growth and record unemployment. That was the dividend of tough decisions and hard
The job of Treasurer of Australia is a tough one. Australians are no doubt very concerned to hear the Treasurer, when asked a basic question about issues like state government debt and the impact on inflation and interest rates, answer:
Sometimes I will have the details on hand and sometimes I will not …
If Wayne Swan cannot quickly master his role and infuse his treasurership with some authority, he will go the way of John Kerin. John Kerin was the Labor Treasurer in 1991 whose lack of command of the portfolio saw him deliver just one budget and serve only six months. It is not that Wayne Swan is asleep at the wheel; it is that he does not know how to drive.
For the sake of Australia, he had better learn darned fast or do us all a favour and hand over to the guy who really is running the Australian economy and who knows what he is doing: Dr Ken Henry. We have a government for a reason; the buck stops with them. Labor wanted the gig, so stop whingeing, stop complaining and do your job.