Last Friday I continued a tradition of my predecessor in Cook, Bruce Baird, by catching up with one of our more prominent Shire constituents at Tatterstalls Club in Sydney.
The occasion was a public hearing of the House of Representatives Standing Committee on Economics, which Bruce used to chair. The constituent was none other than Reserve Bank Governor Glenn Stevens. The Shire conspiracy over economic management in Australia continues!
As usual, reports of the proceedings narrowed in on the key question of where rates are headed. Sadly, the answer is up, by as much as 2%. This was not a major revelation as the Governor had already flagged this view in the Bank’s August monetary policy statement.
While the Governor explained this move as, to paraphrase, monetary policy being restored to normal transmission, this will be cold comfort for mortgage holders facing up to $400 a month extra for the average mortgage during the next twelve months.
As the Prime Minister claimed credit for rates falling, he must now also take responsibility for rates on the rise, as debt grows and Labor’s spending spirals out of control.
But that is not all the Governor had to say.
The Governor is a good spirited individual who likes to see the best in people. It is fair to say that he is presently unconcerned about the projections for the Government’s relative net debt position. While we may disagree, his answer to this question was not a surprise, but there were some important qualifications given.
On Friday the Governor was also good enough to acknowledge that the reason for our low relative debt was the economic legacy inherited by the Rudd Government. A fact that our current Prime Minister and Treasurer cannot bring themselves to acknowledge, as apparently November 23 2007 was ground zero in economic management in Australia.
The Governor argued convincingly that unlike most developed nations around the world, who failed to get their finances in control over the past ten years, Australia was the exception and this did not happen by accident.
Where I believe the Governor’s genuine good faith will be disappointed by the Government is in his assumption that Labor will also have the discipline and commitment to pay down debt and keep their spending programmes under control going forward.
In response to my question on Friday ‘at what point, by pursuing (stimulus) projects when they are falling behind timetable, do we risk over-stimulation?’ The Governor said ‘ the view we have assume(s) that they (the projects) take place in a reasonably timely fashion’. So assuming they deliver their projects on time and as intended their shouldn’t be a problem.
But we already know that the wheels are falling off these projects. Public housing is proceeding at half the pace necessary and the auditor general is now ‘looking under the hood’ of the $14 billion + Julia Gillard memorial school halls programme.
With the economy improving anyway, before these projects have even hit the ground, at what point can you build too many school halls?, especially when there are so many other more vital economic, as opposed to social, infrastructure priorities out there.
In response to a similar question from my colleague Jamie Briggs, the Governor said ‘we will probably respond to that’- assumingly through monetary policy.
He then went on to say ‘whether the government is able to or choose to respond with discretionary changes in the already announced fiscal things is really up to them. I certainly agree that in due course there will be an eminent case for these discretionary fiscal measures to be unwound as they are currently scheduled to be. If the timing of that needs to change, Canberra will have to think about whether they can do that.’
So to echo the Treasurer as he celebrated monetary and fiscal policy working together as rates fell, the same applies on the other side, when it comes time to shift the economy off the sugar and onto the protein. Will the Treasurer be singing the unison tune as rates go up?
So there it is, if the Government fails to keep pace with their projects and our economy has been able to rebound without them, these projects may no longer be required.
Worse still if they stubbornly press ahead with them, to implement the largest pork barrelling effort in national history, debt will not be on the only thing they add to. Inflation will also feel the pressure from a poorly targeted and overcapitalised stimulus. In other words, too much too late.
So at the end of the day, under Labor you may get a school hall and a rate increase all rolled into the bargain.
Now the Governor had plenty else to say and you can check it all out here, from the need to remove supply bottlenecks in our private housing market to the fact that it was stimulus policy in China, fuelling our exports, that was primarily responsible for avoiding a technical recession in March, rather than stimulus policy at home..
However, of most significant immediate concern was the Governor’s confirmation that despite the ETS being the single largest change to our economy in living memory, with clear and multiple inflationary impacts, the Rudd Government has not even bothered to ask the RBA what they think about it.
But why should we be surprised. They’re not prepared to listen or talk to anyone about their scheme, why should the Governor be any different. On behalf off all Shire residents I am outraged at the snubbing of on our own.
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