Thursday, 15 May 2008
Reserve Bank Amendment (Enhanced Independence) Bill 2008
Debate resumed from 14 May, on motion by Mr Swan:
That this bill be now read a second time.
Yesterday I was talking about the impact of monetary policy. The member for Wentworth made a significant contribution—if I can put it that way—to the debate yesterday. He is the same person who, in 2006, said that we were overdramatising interest rate rises. He also said that interest rate rises were a fairy story. My predecessor in the seat of Blair actually gained national notoriety during the federal election campaign when he described interest rate rises as something to the political advantage of the coalition government of the time.
But I want to talk about the contribution made by the member for Wentworth yesterday. I had a look at the Reserve Bank Act 1959. Section 25 of that act says that the Treasurer shall terminate the appointment of the governor or deputy governor on the following grounds—if that person:
- becomes permanently incapable of performing his or her duties; or
- engages in any paid employment outside the duties of his or her office; or
- becomes bankrupt, applies to take the benefit of any law for the relief of bankrupt or insolvent debtors, compounds with his or her creditors or makes an assignment of his or her salary for their benefit ...
What we are seeking to do here is, of course, change that and provide that the Governor-General may terminate the appointment of the governor or deputy governor. The amendment bill under section 25(8) specifies those same grounds. But it says, in a machinery provision, that if you want to use those grounds to terminate then you have to go through both houses of parliament. So, in that regard, what we are doing here is effectively making a machinery provision.
What the member for Wentworth did not say at all yesterday is that there were amendments to section 24 of the Reserve Bank Act 1959. Those amendments say:
- The Governor and the Deputy Governor:
- are to be appointed by the Treasurer; and
- shall be appointed for such period, not exceeding 7 years, as the Treasurer determines but are eligible for re-appointment; and
- hold office subject to good behaviour.
If you were listening to the contribution of the member for Wentworth yesterday, you would think that the appointment of the Governor and Deputy Governor of the Reserve Bank was actually akin to the appointment of a Supreme Court judge in the United States; that you could not get rid of them at all except on very specific grounds. He did not talk about the protection of section 24 at all in his contribution—that is, the appointment could be for a specified period not exceeding seven years and that those particular persons only hold office subject to good behaviour. That is quite significant. What I am saying here is that the only spin in relation to this matter is actually coming from the member for Wentworth.
We have taken significant steps, and the Reserve Bank has agreed with them. We now have the situation where, in addition to greater transparency and accountability as a result of this legislation, the Reserve Bank releases minutes of each central bank board meeting and releases a public statement in respect of interest rates irrespective of any adjustment decisions made by the board. No longer does the Reserve Bank only provide statements when they adjust the official cash rate. The increased transparency helps business people and working families to understand the reasons behind monetary decisions which have a real impact on their lives. Furthermore, future Reserve Bank board appointments will only be made through a registry compiled by the Secretary to the Treasury and the Reserve Bank governor from which the Treasurer will make a choice.
These are significant changes we are making. As I said yesterday, this is all about perception. It is about improving the public’s perception and it is about more arm’s-length aspects of monetary policy. It is also about enhancing the reputation of the Deputy Governor and the Governor of the Reserve Bank, thereby enhancing the public’s perception of the openness of government and the openness of the Reserve Bank. It is about improving the public standing. These reforms are important and I believe they herald a new era of independence and transparency in monetary policy. They are good amendments and I think the member for Wentworth is wrong in his legal analysis of the legislation. I would commend to him section 24 of the Reserve Bank Act. I think he needs to have a good look at both the bill and the act to see that substantive and machinery provisions are different matters entirely.
I commend the bill to the House and commend the Treasurer for what he is doing. This is a commitment of the new government. It is an election commitment. We have said that we believe it is important that monetary policy be effectively used by the Reserve Bank. We think this is important in fighting inflation and we are not leaving it up to the Reserve Bank board alone. The budget that was handed down just a couple of nights ago goes towards helping working families and individuals in my constituency in Blair. That budget will make an important contribution to help them in their fight against inflation and help them in their domestic budgets. I commend the bill to the House and I congratulate the Treasurer for what he has done in this regard.
The Reserve Bank Amendment (Enhanced Independence) Bill 2008 is a show bill that smacks of overcompensation for Labor’s very ordinary record on Reserve Bank independence. The shadow Treasurer has already made the point well about the failings of this bill and how, in his rush to symbolism on this issue, the Treasurer has dropped the ball. This bill screams, ‘He doth protest too much.’ The bill presents us with the absurd situation where we could have the Reserve Bank paralysed by the Treasurer’s ill-thought-through process where an incapacitated governor could continue to serve in the role. Or worse, according to the Parliamentary Library’s Bills Digest, the consequence of these amendments is that there is no longer any ability of either the government or the parliament to dismiss the governor or deputy governor on the grounds of misbehaviour.
The shadow Treasurer has also brought to our attention the poor record of Labor in their commitment to the independence of the Reserve Bank. In February of this year, the Prime Minister said, in an interview with Kerry O’Brien, ‘Kerry, if you accept the independence of the Reserve Bank, which we have done as a matter of policy for a long, long time.’ I do not know what constitutes a long time in the Labor Party but it clearly cannot extend to 1996 when the then Leader of the Opposition, Kim Beazley, was so committed to the policy of independence of the Reserve Bank that he was prepared to take the government to the High Court over the former Treasurer’s statement on monetary policy. That policy has done more to enhance the transparency and independence of the Reserve Bank than any other measure since the Reserve Bank Act itself. And the long, long time cannot extend to the time of the former Treasurer and Prime Minister Paul Keating, who boasted of having the Reserve Bank in his pocket. All I can conclude is that, to quote the member for Kingsford-Smith, the Prime Minister and the Treasurer must have a ‘short memory’. I will spare the House the musical version because the member for Kingsford-Smith does it much better.
I wish to commend the amendments flagged by the shadow Treasurer to take further the process established by the previous government with more regular appearances by the Reserve Bank Governor before the House of Representatives Standing Committee on Economics. The coalition do not need a show bill to demonstrate our commitment to the independence of the Reserve Bank. Our record speaks for itself. This is a bill, not unlike the budget, intended to send a message to the community to confect a perception that the government is trying to create, while actually doing nothing at all to address the object it pretends to address.
This is a political tactic that has been developed by Labor—which I have observed over some time—at a state level for over a decade, drawing on the experiences of their counterparts in the UK, where politics always triumphs over policy. The former New South Wales Premier Nick Greiner has a great saying: ‘Labor are great at politics but lousy at government.’ They are a government that understand the political tactic of seeking to create or exaggerate an enemy in order to better create a perception about their own position. They are experts at creating public alarm and talking up the issue regardless of the impact such reckless actions may have. The goal is never to solve the problem but rather to own the problem and to define themselves in the process. This may be very clever politics but it is very bad government. If you need any convincing, take a look at my home state of New South Wales, where such an approach has dragged the state to its knees. The political masterminds who have kept Labor in power for so long in that state are now here in Canberra running the same operation.
The Prime Minister is the Bob Carr of national politics, and the people of Australia can expect the same results. One problem the government have, which they do not want to talk about, is that they lack economic credibility—and they know it. The public may have accepted many claims from the now government at the last election, but one puppy they never bought was that Labor were better economic managers. While they would never admit it, Labor understand that the public simply does not trust them with their money, and that they never have. Labor also know that they are so conflicted in their ability to run an economically responsible agenda that instead of actually doing it they will fake it—fake it till you make it. This is what this bill is designed to achieve. This is a bill that the government claims is needed to improve the independence of the Reserve Bank to place downward pressure on interest rates. My question to those opposite is: where is the evidence to suggest there is a problem with a lack of independence in the Reserve Bank, and that this in some way has placed upward pressure on interest rates?
Remember that this is a Reserve Bank which, under the previous government, put interest rates up during the last election. What greater test of independence could there be than that? To answer this question, rather than those opposite having to rely on my advice I thought I would quote someone whom they may listen to—the former Governor of the Reserve Bank, Bernie Fraser. Mr Fraser had quite a lot to say about the topic of independence of the Reserve Bank. In a speech to a central banking conference in Karachi in November 2004 Mr Fraser gave an address titled ‘Central bank independence: what does it mean?’ In the speech Mr Fraser argued that price stability was the core purpose of a central bank and, more specifically, its purpose was to counter two potential threats that require their independence—firstly, the tendency for policymakers to push the economy to run faster and further than its capacity limits and, secondly, the temptation for governments to incur deficits and fund those from central bank borrowings.
The second threat is clearly not a problem for this government, having inherited the strongest set of books in our history. There was no need to pay down $96 billion when they came to office. There is no real effort required to generate the surplus in their budget which they boast of now in this place. How different was the situation that confronted this government from the situation that confronted the member for Higgins, our greatest ever Treasurer, back in 1996. However, on the first threat, it is true that the Australian economy has been strong—and thankfully so—and it is true that in recent times the Reserve Bank has taken the decision to raise interest rates. However, is the government suggesting that this has been in some way a result of a failure of the independence of the Reserve Bank in taking this action?
On this matter of rate rises it is also good to get some perspective, especially as we know of the government’s use of clever language to exaggerate problems. Twelve rate rises and 20 warnings all sound very dramatic, but let us look at the facts as I remind the House of some comparisons I made earlier in this place. Let us look at the quantum of these rate rises and the period of time over which the rates rose. Looking at the standard variable rate, under the coalition in April 2002 interest rates were 6.05 per cent. In November 2007, at the time of the election, they had risen to 8.5 per cent. That is a 2½ per cent increase over five years and seven months—67 months. This was the only period of rate increases over the 11½ years of the coalition government.
Contrast that with Labor. Firstly, in March of 1985 interest rates were 11.5 per cent and in just 13 months they went up to 15.5 per cent—that is a four percentage point increase. Secondly, in June 1988 they were at 13.5 per cent and in just 12 months they rose 3.5 percentage points to 17 per cent—and we all remember that. Thirdly,in August 1994 interest rates were at 8.75 per cent, and by December 1994—just four months later—they had gone up 1.2 percentage points. So we can see that when Labor put the pedal down on interest rate rises they went up on average 0.3 per cent per month. By comparison, under the coalition when interest rates rose they went up by just 0.04 per cent per month. So under Labor we had an interest rate accelerator that was 7½ times greater than under the coalition, and not once but three times did rates rise; and not once did the starting point for interest rates under Labor ever get lower than the finishing point under the coalition. So it is rich for those opposite to come into this place and deliver lectures on interest rates when Labor have written the book on how to increase interest rates in this country and have presided over an interest rate accelerator that exceeds all others. But why have Labor been so poor on this front? Again Mr Fraser helps us out. He states:
Increased central bank independence does not necessarily lead to lower inflation. This is because monetary policies, on their own, cannot guarantee to deliver lower inflation without unacceptable costs in terms of lost output and jobs. Fiscal and wages policies have an important bearing on inflation outcomes, and these need to be compatible with an anti-inflation monetary policy.
And this is where we have a problem. The government’s much promoted five-point plan on inflation—another example of the triumph of language and politics over policy by the government—falls well short of the mark. Not only does the plan have a five-star blind spot by failing to address wage pressures, with no mention at all in the government’s five-point plan about containing wage pressures, and we read headlines in the Australian last week of 18 per cent pay rise demands by unions, but also we had the government’s effort on fiscal policy with the government’s budget delivered here on Tuesday night. Point 1 of the five-point plan is fiscal restraint, yet we had the highest-taxing and highest-spending budget in Australia’s history. The Treasurer paraded himself around this country as the ‘commando’ of fiscal restraint to fight inflation, but on Tuesday night it was not the commando who showed up but Captain Feathersword. The government has taken to budget spending with all the force of a soggy, wet newspaper. If those opposite do not believe me on that point, Peter Hartcher in the Sydney Morning Herald this week wrote:
... in truth, the budget is stimulatory. It will add to inflation, not fight it. That leaves the Reserve Bank to do the tightening instead.
Ross Gittins wrote:
We were told the budget would “exert maximum downward pressure on inflation and interest rates”. It doesn’t.
Furthermore, the government was silent on state debt—an $80-plus billion debt binge on the part of the states—and it was silent on tax reform at a state level. The Prime Minister says that this is about ending the blame game when it comes to the states. But I caution every Australian that every time you hear the clever phrase ‘ending the blame game’ from the Prime Minister and those opposite what it really means is letting his Labor mates in the states get away with it by washing away their accountability in a sea of federal government money so that taxpayers in states pay twice for their infrastructure, twice for their hospitals, twice for schools—first for the incompetence of the states, and second for the bailout by the federal government. It is there to wash away their accountability for their own important responsibilities for which they should be held to account.
I return to the role of the Reserve Bank in addressing inflation. I draw attention also to Mr Fraser’s comments that, in order to address the first threat of forcing an economy to grow beyond its constraints, it is important to give central banks a charter, including a strong commitment to price stability and the freedom to pursue it. Mr Fraser says:
They should not have goal independence, but they should have instrument independence.
He talks of a number of ways that goals should be set, but concludes that the approach provided for the Reserve Bank of Australia, under their act, is the one he was most comfortable with as it gives a high priority to price stability while also having regard to other objectives such as growth and employment. He then specifically stated:
Central banks with multiple goals—
which is what our central bank has—
have more independence.
And, frankly, that is exactly what we have in this country. The Reserve Bank Act requires the bank to conduct monetary policy in a way that, in the board’s opinion, will best contribute to the objectives of the stability of the currency of Australia, the maintenance of full employment, and the economic prosperity and welfare of the people of Australia. These are the goals the Reserve Bank has to manage.
Our bank has always had this arrangement. In fact, back in 1996, the Financial Services Union in a submission to an inquiry said quite clearly that it believes:
... that the present powers and obligations of the Reserve Bank … provided for in the … Act, ensure a sensible balance between independence and ultimate democratic accountabilities …
It goes on to say:
This is unlikely to be improved by any further changes to the Act.
In 1996, the former Treasurer, the member for Higgins, built on the foundations set out in the Reserve Bank Act with his statement of monetary policy that further enhanced and clarified the independence of the bank—not by legislative stunts, as we see in this bill, but by providing the bank with even clearer direction as to monetary goals. On 14 August 1996, the former Treasurer issued the coalition government’s statement on the conduct of monetary policy. The statement recorded the common understanding of the Governor-designate of the Reserve Bank and the government on key aspects of Australia’s monetary policy framework. It was designed to clarify respective roles and responsibilities. The statement contributed to a better understanding, both in Australia and overseas, of the nature of the relationship between the Reserve Bank and the government, the objectives of monetary policy, the mechanisms for ensuring transparency and accountability in the way policy is conducted and the independence of the bank.
The statement formally recognised that the Reserve Bank Act gave the board the power to determine the bank’s monetary policy and to take the action necessary to implement policy changes; that the government recognised the independence of the bank and its responsibility for monetary policy matters and intended to respect the bank’s independence as provided by the statute; and that Section 11 of the Reserve Bank Act prescribed procedures for the resolution of policy differences between the bank and the government, allowing the government to determine policy in the event of a material difference, but that the procedures were politically demanding and that their nature reinforces the bank’s independence. The former Treasurer stated that safeguards like this ensured that monetary policy was subject to the checks and balances inherent and necessary in a democratic system.
The former Treasurer’s statement also ended the practice of the Keating government of parallel announcements of monetary policy adjustments, which enhanced both the perception as well as the reality of the independence of the Reserve Bank’s decision making. The statement acknowledged that the bank and the government agree on the importance of low inflation and low inflation expectations, as such actions assisted businesses in making sound investment decisions, underpinned the creation of new and secure jobs, protected the savings of Australians and preserved the value of the currency.
If only the new Treasurer understood the significance of this point—particularly about inflationary expectations. The first figures on inflationary expectations, revealed earlier this year, demonstrate that since this government has come to power inflationary expectations have risen. Is there any wonder why that would have occurred, when the Treasurer, speaking on the eve of Reserve Bank board meetings, was talking about inflation genies coming out of bottles. If it was not bad enough for the Treasurer to utter those words on the eve of a Reserve Bank board meeting, we have heard the Prime Minister in this very place repeat those phrases about genies and bottles. These are reckless statements which do nothing to support people and families across Australia—not just working families but people and families. There are people and families all across this country, not just those that the government would exclusively define as working families.
The former Treasurer went further with his plan by setting a goal for medium-term price stability of keeping inflation between two and three per cent, on average, over the cycle. Average inflation on the former Treasurer’s watch was 2.5 per cent. The policy worked. Apparently Mr Fraser, the former Governor of the Reserve Bank, agreed with his position, because in a speech to the National Press Club in August 1996 he said:
Targets can be flexible in providing an anchor for inflation expectations, and a discipline on monetary policy. But they should be flexible enough to serve those purposes and to avoid any proclivity to press the alarm button every time inflation threatens to go above the target.
Pressing the alarm button is what we are seeing from this government and this Treasurer—hitting the alarm button on every issue, making intemperate comments about inflation and talking up the issue to seek political advantage while leaving the policy tools in the drawer. The substance of the government’s real opinion of the previous government’s economic management is the fact that they copy it, like the tax cuts on Tuesday night or the new Treasurer recommitting the government to the monetary policy target developed and issued by the former Treasurer. The best this government can do on economic management is to seek to mimic the former government. The problem is that they do not believe it and they do not get it. There is nothing to suggest that the independence of the Reserve Bank has been compromised. So in relation to this bill my question is: where is the mischief? The only mischief here is from the Treasurer: he is desperately looking for some type of symbol to support the con this government is trying to perpetuate on the Australian people about its economic credentials.
I rise to speak in support of the Reserve Bank Amendment (Enhanced Independence) Bill 2008, which is a bill to amend the Reserve Bank Act 1959. It gives expression to a commitment that Rudd Labor made in the lead-up to the election last year, in November 2007. One would think that giving an enhanced independence to our central bank is a pretty uncontroversial proposition. Indeed, I think if you were to speak in the abstract to any member of this parliament about whether or not they agreed with the idea of our central bank being independent you would have an almost unanimity of view that we should have an independent central bank, and yet the state of the Liberals in 2008 is such that they even managed to find themselves in opposition to a bill which seeks to enhance the independence of the Reserve Bank. It speaks volumes about where the Liberals are at this moment in time. They have let go of any guiding philosophy. They are rudderless and aimless. And what defines them is being an opponent of us. The truth is that the reason they oppose this bill is that it formed part of a commitment that Labor made in the last election and it is now a bill being sponsored by Labor through this parliament. Because of that, not because of its content, we see the opposition in the extraordinary position of opposing a bill which is aimed at enhancing the independence of our central bank. We saw the complete absence of any guiding philosophy on the part of the Liberal Party in 2008 in their reaction to the government’s budget on Tuesday night.
We have seen it particularly in the comments of the member for Wentworth. Just last Sunday, on the Insiders program on the ABC, we saw Mr Turnbull, the member for Wentworth, engage in the most extraordinary mental acrobatics as he did a triple somersault and seemed to go from one position to the next and back to the same position, all within the space of moments. The issue was whether or not the government should engage in expenditure cuts. Of course, this is against the backdrop of whether or not the opposition believes that inflation exists or is a problem in Australia in 2008. Of course, we have had the member for Wentworth describing the whole issue of inflation and whether or not we have an inflation problem as only being a fairy story. Against that backdrop, the member for Wentworth, at the start of his interview with Barrie Cassidy on the Insiders program, said:
The only point that I’ve made about spending, Barrie, is this: that we are in a very tough international economic environment. Wayne Swan has said that in order to reduce demand, slow the economy, put downward pressure on inflation, he is going to make huge cuts in net spending.
Now, that doesn’t mean cutting Howard Government spending and replacing it with Rudd Government spending; it means pulling many billions of dollars out of the net spending Budget of the Government. Now that would slow the economy if its big enough to do that, I think it would be unwise because we are going into tougher times.
I suppose we are to take from that comment that the member for Wentworth is asking the government to not engage in expenditure cuts in this budget, and yet, only a few moments later, in the very same interview, Barrie Cassidy asked:
But aren’t you having it both ways? To have a real impact on inflation you’ve got to cut by how much, five, six billion dollars?
To that the member for Wentworth said:
I would think at least. I mean, in the US, where they are trying to reflate their economy, Hank Paulson, the Treasury Secretary, has described their $150 billion stimulus which is one per cent of GDP as being enough to make a difference. Now, a one per cent of GDP cut here would be $10 billion, so most people say half a per cent, five of six billion dollars, would make an impression. Anything less than that is not going to make an impact.
From that statement, made literally moments later, I suppose we are to take it that the member for Wentworth wanted the government to engage in extensive expenditure cuts in the budget. Then, only a few moments later, in the very same interview, we see the backflip again when he says:
Well, I think there should be cuts which are based on efficiency, they should always be running, any time and any season. But when you are talking about taking a big cut to lower inflationary pressures, what you’re talking about doing is slashing programs which might be quite good and saying, “OK, we’re not going to build that school this year, we’re not going to build that road this year, we’re going to cut these programs in order to ruthlessly lower overall demand.
I think what we are to take from that is that the member for Wentworth, within the space of just a few minutes, did not want expenditure cuts. First he did not want the cuts, then he did want the cuts, then he did not want the cuts, and all that occurred in just a five-minute interview with Barrie Cassidy last Sunday.
Since the budget on Tuesday night we have this comment in today’s Australian, on page 9, from the member for Wentworth:
Wayne Swan was telling you and me and everybody else for months that it was going to be a tough budget which would put downward pressure on inflation ... He’s a complete wimp, he’s done nothing to tackle inflation.
I take it from that that the member for Wentworth was unhappy that there were not enough cuts in the budget. Now we are left to wonder: is there an inflationary problem or is there not an inflationary problem from the point of view of the Liberal Party in 2008? The truth is that they have no idea. The truth is that the Liberals in 2008 are flipping and flopping all over the place. Their mental acrobatics is astonishing. The only thing that defines them is a desperate attempt to oppose us. That is a bad thing for Australia. It is a bad thing because it means that in this House there is actually only one side on duty. There is only one side that is giving any kind of intellectual engagement about what the philosophy for this country should be going forward. There is only one side that is actually giving a view and there is another side that is just trying to work out how to oppose it no matter what the cost.
The Rudd government is absolutely committed to relieving financial pressure on working families, and the bill we have today is just one measure in a suite of measures which are aimed at modernising our economy and reducing the financial pressure on working families. We understand the importance of modernising the economy so that we can have sustained, long-term growth which creates real jobs and keeps inflation in check so that all of that can give us rising living standards. We have demonstrated that in the budget that was delivered on Tuesday night with the Working Families Support Package, a $55 billion package for working families, and through placing an emphasis on building this nation through the creation of a $40 billion series of funds which will look at infrastructure, education and health to ease inflation. Of course, these go directly to the issues which have been highlighted by the Reserve Bank board as being the capacity constraints on our economy.
Labor does have a guiding philosophy. Labor actually has a long tradition, which over the decades has been modernised to account for contemporary circumstances, which has, over the more than a century of the party’s existence, always been about improving the lot of working families. You see that tradition even in relation to an institution like our country’s central bank. This bill is very much in the tradition that Labor has had in building, enhancing and giving independence to our nation’s central bank. It was the Fisher government which, in 1911, created the Commonwealth Bank, which became the body corporate that was later used to create the Reserve Bank of Australia. It was the Chifley government which, in 1945, gave rise to the Commonwealth Banks Act and the Banking Act, which formalised bank powers in monetary and banking policy and exchange control. It was the Hawke government which, in 1983, floated the dollar and so defined the Reserve Bank’s role as no longer regulating the Australian dollar but instead intervening to sustain its stability. It was actually the Labor government of Paul Keating which established the current tradition of the two to three per cent inflationary target, which was first articulated by the Reserve Bank governor, Bernie Fraser, in 1993 but which was then endorsed by the Keating government—by the then Treasurer, Ralph Willis—in 1995. And so in that, leading to this bill now, you have a longstanding tradition, a guiding philosophy and a theme of how we see that the country ought to be governed even in relation to an example such as this.
That stands in stark contrast to the Liberals and to the Howard government. The way in which they have been characterised, in terms of governing this country, has actually been as economically lazy. During the term of the Howard government, we saw 15 interest rate rises, including 10 successive interest rate rises from 2002 through to the end of the Howard government. It can rightly be said that inflation was the parting gift of the Howard government to this country, and it was caused by laziness, neglect and a lack of reform. The Liberal Party ignored 20 separate Reserve Bank warnings on skills shortages and capacity constraints in the economy—
You can shake your head, but the fact of the matter is that those warnings were there and the Liberal Party ignored them. In fact, the way you in the Liberal Party, in government and in opposition, have gone about things on this issue is very much akin to an ostrich. You have found the nearest sandpit and you have plunged your head straight into it. When it comes to whether or not there is an inflationary issue, that is what you have done. You have found the nearest sandpit and you have plunged your head straight into it. You even have the Leader of the Opposition saying that the Rudd government has inherited a first-class economy. He said that despite the highest underlying rate of inflation for 16 years and despite 12 interest rate rises in a row. As I said before, you have the member for Wentworth saying that inflation is nothing but a fairy story and, of course, you have the former Treasurer, the member for Higgins, saying that inflation was right where they wanted it.
Of course, we have had comments now—and there have been comments previously from the Liberal Party—that there have been intemperate statements made by those of us on this side of the House about the economy. Well, here is the fact of the matter about what statements have been made and whether they are temperate or intemperate statements. What the market needs to know is that there is a government running this country which understands the problems that this country faces. So acknowledging that there is an inflationary problem is not talking the issue of inflation up; it is actually acknowledging that there is a problem and then coming up with a plan to deal with it.
Mr Speaker, I raise a point of order. Standing order 104 deals with the issue of relevance. For the last 15 minutes the member for Corio has spoken about Labor’s budget and a whole range of issues, with barely a mention of the Reserve Bank issue at hand, and I ask you to bring him back to the measures in the bill.
Order! There is no point of order. This debate, so far as I have followed it, has been fairly broad ranging, and I note that part of the responsibility of the Reserve Bank relates to inflation and the general economic circumstances of the country.
What we have had from the Liberal Party is simply head-in-the-sand politics, and what we have had from this side of the House is a sober acknowledgement of the problem followed up with a plan for how we intend to deal with it. That actually does not talk inflation up. If anything, that gives inflationary expectations that inflation will go down, because the market knows that it has a government in place which is actually acknowledging that there is a problem and is going to do something about it.
The Governor of the Reserve Bank, in his address to the House Standing Committee on Economics on 4 April this year, described inflation as uncomfortably high. That is the truth of the matter. The Governor of the Reserve Bank described it as uncomfortably high. That fact is obvious to every Australian out there who feels the pressure of rising inflation and interest rates in their everyday life—in grocery prices, in petrol prices and, in particular, in housing prices. So you have the Housing Industry Association saying in April of this year that:
Recent interest rate increases are hitting housing hard with the value of housing loans decreasing 7.1 per cent in February and the number of loans falling by 5.9 per cent.
Inflation is hitting particularly hard in my seat of Corio, in the city of Geelong. According to the census figures in 2006, the median household income in Geelong is $840 per week, almost $200 less than the national average. In 2006 the median house price in Geelong was $257,500. If you take a standard loan of that kind of amount—with, say, 8.5 per cent at the current market rate, over a 25-year period—that means that the average repayments for a family in Geelong are around $478. That is more than half their median income, and that is a description of mortgage stress. That is what people in Geelong are feeling as a result of the inflation gift that has been given to them by the Howard government.
The Rudd government is aware of this and so there is a $2.2 billion package in the budget, announced on Tuesday night, which is aimed at dealing with housing affordability. Inflation has taken a long time to build and it will take a long time to dismantle, but the Rudd government is absolutely committed to doing that because it understands that prolonged high inflation will compromise long-term economic growth, compromise our standing of living and ultimately give rise to higher unemployment. So, in tackling inflation, we are going to look at the Reserve Bank warnings. We are going to address the issues of skill shortages and infrastructure capacity constraints within the economy.
That is why we have put enormous emphasis on building our nation and on building infrastructure in Australia. In the budget, we have a $20 million commitment to establishing Infrastructure Australia, which will provide a coordinated approach to building infrastructure in this country, as well as the establishment of three funds totalling $40 billion: the $20 billion Building Australia Fund, the $11 billion Education Investment Fund and the $10 billion Health and Hospitals Fund. All of that will go a long way to building the productive capacity of our nation.
There is no better example of how we can improve the productive capacity of our country through infrastructure than in my home town of Geelong. We have been building a ring-road around Geelong, which will be an enormous boost to the local economy. Make no mistake: it is, at the end of the day, a Labor initiative. It was announced jointly by the state and federal governments in May 2005, principally at the behest of the then Bracks state Labor government. The Howard government came to this project kicking and screaming only after it was concerned that it would lose the seat of Corangamite in the 2004 election, which it ultimately did, of course, in the 2007 election. The initial funding was provided mostly by the state Labor government. There was an announcement of further funding from the state Labor government in 2006 for the final stage of it. But, when the Howard government came to look at this project in the lead-up to the last election, it completely ignored giving any funding to it. One week later, the Rudd Labor government did commit to the project, and we saw the down payment of that commitment in the budget on Tuesday night.
Let me say that we are about trying to modernise our economy, and this bill is part of a suite of programs to do that and that is why I have been outlining the others. But let me deal with this particular part of that program of modernising our economy. This bill will give enhanced independence to the Reserve Bank. Under the current law, the Treasurer has the sole responsibility for appointing, suspending or, ultimately, terminating the Governor or the Deputy Governor of the Reserve Bank. That allows for partisan politics in relation to the appointments to the Reserve Bank, and we know all about that with the Reserve Bank board. We had the Robert Gerard affair, with the former Treasurer intervening in the appointment process to the board despite the fact that you had a man who was under a tax office investigation and ended up paying $100 million in outstanding taxes and penalties. But, of course, the issue with Robert Gerard was that he was an influential Liberal Party donor, which is why he ended up on the Reserve Bank board. But this is about enhancing the independence of the Reserve Bank.
Mr Speaker, I rise on a point of order. The member for Corio referred to the integrity of the previous Treasurer when he explicitly stated that the Treasurer only appointed the man to the board because he was a friend of the Liberal Party. I ask the member for Corio to withdraw that offensive remark about the former Treasurer.
This will place the appointment of the Reserve Bank governor and deputy governor in the hands of the Governor-General acting in council, and any suspension or termination of the Reserve Bank governor or deputy governor can only occur if the Governor-General, acting in council, then refers it to the parliament. Such a removal, if it ultimately occurred, would only occur if there is an agreement by both houses of this parliament acting in the same session. In doing that, it raises the position of the Deputy Governor and Governor of the Reserve Bank to the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician. That can only help enhance the independence of the Reserve Bank. (Time expired)
I rise to strongly oppose the Reserve Bank Amendment (Enhanced Independence) Bill 2008 and, in absolute deference to the member for Corio, I will actually spend the time speaking about this shoddily crafted bill and why it is a disgraceful bill to move through the parliament. The introduction of this bill was announced with enormous fanfare on 6 December last year, when the PM announced, with almost Barack Obama type exclamation, a ‘new era of independence’ for the RBA. His press release came out with a very large ‘new era of independence’ on it. Yet the reality is far different, as is the case with most things that this government is putting forward.
This bill seeks to amend the Reserve Bank Act 1959 so that the Governor-General rather than the Treasurer will be responsible for the appointment of the governor and deputy governor of the bank and for their dismissal. Far from being a ‘new era of independence’, as the Prime Minister and Treasurer so boldly stated, this is simply a return to the status quo that existed before the commencement of the Financial Sector Legislation Amendment Bill (No. 1) in 2002. This 2002 bill was supported by the opposition, the now government, and it amended the act so that the Treasurer appointed officers and board members to streamline the appointment and termination process. Indeed, the current Minister for Finance and Deregulation said on 19 June 2002:
The Financial Sector Legislation Amendment Bill (No. 1) 2002 deals with a range of regulatory changes to the arrangements primarily governing the regulation of corporations, particularly in the financial sector. I will address them very briefly in turn, because they are broadly uncontroversial and are supported by the opposition ...
The present finance minister of this government, when speaking about the bill in 2002 that took the authority for the appointment and dismissal from the Governor-General to the Treasurer, said these are ‘broadly uncontroversial and are supported by the opposition’. I can only suggest that the finance minister has had an epiphany in the last five years and has completely reversed his position. Furthermore, that bright shining light of a Labor leader, that almighty luminary, the former member for Werriwa, that name we shall not speak, Mark Latham, said on the same date:
The Financial Sector Legislation Amendment Bill (No. 1) 2002 contains amendments to 10 pieces of legislation that govern the operation of financial institutions, the insurance and superannuation sectors and the Reserve Bank. We are generally supportive of the amendments ...
Labor’s great luminary, the previous Leader of the Opposition before the current Prime Minister, said ‘We are generally supportive of the amendments’. He did not stop there. He went further to say:
Proposed amendments to the Reserve Bank Act 1959 seek to simplify the procedures for appointing RBA board members and other senior officials. The Treasurer proposes to make these appointments directly rather than via the Governor-General. So this is indeed a minor alteration.
The former Leader of the Opposition, the great Labor luminary, Mark Latham, said that these are ‘indeed a minor alteration’. The current finance minister said these are ‘broadly uncontroversial and are supported by the opposition’. Now, apparently, it is central to a ‘new era of independence’. This must be a joke. This must be an absolute charade. If this is a new era of independence, then clearly we are all in the wrong place. This is simply back to the future. At present, under section 25 of the act, the Treasurer is obliged to terminate the appointment of the governor or deputy governor if either of them becomes permanently incapable of performing his or her duties, engages in outside paid employment or becomes bankrupt. Clearly, in any of these circumstances, the governor and deputy governor of the bank cannot adequately perform their duties in the service of this nation and they should be dismissed straightaway. Despite Labor’s rhetoric in their press release, this ‘new era of independence’ that they so solidly backed back in 2002, according to the Treasurer’s second reading speech on 20 March 2008, the bill does not provide a list of eminent candidates to be maintained by the Treasury and the Reserve Bank governor for appointment to the Reserve Bank board. It is not clear that Labor have made any changes to the status quo in this respect. In the press release, in their ‘new era of independence’ statement on 6 December 2007, they made it very clear:
The Rudd Government is committed to improving the transparency of future Reserve Bank Board appointments and to remove political considerations.
Accordingly, the Secretary to the Treasury and the Governor of the Reserve Bank will maintain a register of eminent candidates of the highest integrity from which the Treasurer will make appointments to the Reserve Bank Board.
None of this is in the bill. If the integrity of the Reserve Bank board, if the process of transparency was so fundamentally important to this ‘new era of independence’, surely it would be in the bill; yet it is conspicuous by its absence. Likewise, Labor has not promised to appoint only people on a list and has not promised to release or publish the list. While this list was explicitly referred to when these changes were announced, it is now explicitly missing in action. I can only suggest it might be a casualty on the drop zone. I am not convinced at all that there is any transparency in this ‘new era of independence’.
Labor’s bill goes on to say that the Governor and Deputy Governor of the Reserve Bank will be appointed by the Governor-General, not by the Treasurer. Furthermore, before the governor or deputy governor can be sacked on the three grounds discussed previously, there would need to be a vote of both houses of parliament calling for the Governor-General to do so. There would therefore have to be a full parliamentary debate if the governor were in a car accident, declared bankrupt or started trading futures with the bank—a full parliamentary debate through both houses of parliament before the governor could be dismissed.
In the press release by the Prime Minister and Treasurer, they said they wanted to remove ‘political considerations’; yet pulling the decision for dismissal back into the House politicises the dismissal process and does exactly what the ‘new era of independence’ press release was trying to stop. It also places unnecessary time constraints on the dismissal process and subsequent appointment of a successor. If, for example, tomorrow or, indeed, in four weeks time the governor or deputy governor were to be involved in one of those three incidents—let us say a car accident and he was unable to operate in his duty and parliament does not sit for eight weeks over the winter recess—would we wait for eight weeks before we got a new Governor of the Reserve Bank? If the governor were declared bankrupt, would we wait eight weeks or would we recall both houses of parliament, knowing full well that it costs over $1 million a day for this place to operate? We would recall and spend $1 million of public money just so the Prime Minister and Treasurer could stand there and say, ‘We have a new era of independence.’
I look forward to the Prime Minister actually saying that to kids with type 1 diabetes, and there are 7,000 children waiting for insulin pumps. This farce of a budget—and the member for Corio spent 17 minutes talking about how wonderful it was rather than addressing the bill—only has funding for 170 insulin pumps. That is all. We are quite happy to spend $1 million to come back here to debate whether a bankrupt governor can stay in their position or not, but the government will fund only 170 insulin pumps when 7,000 children are waiting for them, and there is a $41 billion surplus over two years. Something has gone seriously wrong on the government benches.
With an institution as important to the Australian economy as the Reserve Bank of Australia, any time restrictions should be avoided as any delay has the potential to have a lasting impact on the economy. Labor claims this is consistent with the process for the Australian Statistician and the tax commissioner. Yet these officers can be terminated for misbehaviour—and proven misbehaviour accordingly—and they generally do not have a board of directors. It is very different to the Governor and Deputy Governor of the Reserve Bank. Yet the Treasurer can still make appointments under Labor’s farcical bill to the Reserve Bank board and the Payments System board. Does the left hand indeed know what the right hand is doing?
Labor’s amendments are so confusing. Not the least is that in 1996 Labor opposed the independence of the Reserve Bank—seeking legal advice—then in 2002 they supported the changes, and now in 2008 they are rejecting the changes. I suggest that Labor have had a very convenient ‘road to Damascus’ experience, with their leader, Mr Rudd, consistently repeating that he is an economic conservative committed to an independent central bank. But now I fear they are entering into a public relations exercise because they promised as part of their election campaign to strengthen the independence of the Reserve Bank. Not knowing what to do, they have released a press statement calling for a new era of independence, and simply taking it back to 2002.
Their rushed and poorly-written bill does not achieve what anyone had hoped for. It is cumbersome, it will not work and it does nothing to enhance independence. Currently, section 24(1)(c) of the act provides that the governor and deputy governor hold office subject to good behaviour and can be dismissed for lack of good behaviour. Reading through Labor’s amendment, it is arguable that the governor or deputy governor will be immune from dismissal by anyone on the grounds of misbehaviour, as the new sections in the bill do not include dismissal on such grounds.
In simple terms, Labor’s bill appears to be proposing that a governor could act dishonestly or in a way that dramatically undermines public opinion and confidence in the bank and there is nothing the executive or the parliament can do about it. This is not just my interpretation of the bill. The Bills Digest, which is put together by eminent researchers in our own Parliamentary Library, states:
Under the changes proposed by the Bill, in the event the position holder is not of good behaviour there is no mechanism for termination as this requirement is not specified as a ground under new subsection 25(8).
Surely this is not an omission. Surely the drafting of this bill could not be that sloppy that one of the key articles of the bill—dismissal for misbehaviour—is missing. Surely this is not a public relations exercise that is sacrificing good governance so that the Prime Minister can stand there and say, ‘We have a new era of independence.’
I acknowledge that no governor has been dismissed to date. But the governor is in a unique position to cause damage to the economy and the reputation of this nation. I draw the House’s attention to Antonio Fazio, who was the governor of the Bank of Italy when a scandal broke in July 2005 over the sale of Banca Antonveneta, which involved allegations of corruption, nepotism and very poor policy by the Bank of Italy. He was called upon to resign by the Prime Minister. The nation’s leading newspapers demanded that he resign. The majority of the market economists demanded that he step down, yet no-one could sack him except for his hand-picked board, and their silence was indeed deafening. He ignored these calls and hung onto his position for six months. He resigned in December 2005 in disgrace after six months of highly publicised damage to the reputation and standing of the Bank of Italy.
No-one is surmising that this may happen in Australia. No-one is surmising anything but the highest level of integrity from our current and future Reserve Bank governors and deputy governors. Yet forewarned is forearmed, and burying your head in the sand for political populist expediency—so you can stand there and say, ‘I believe in a new era of independence’—is an absolute recipe for disaster. How in good conscience these changes are enhancing the independence of the Reserve Bank is simply and utterly beyond me. I am left with one conclusion: that this bill is either a work of the grossest incompetence or merely a Rudd and Swan publicity stunt. If this is a publicity stunt, then I would be appalled that an institution so pivotal to the financial security of our nation, the Reserve Bank, would be used as a Labor pawn in a political game. The coalition is looking forward to moving an amendment to the bill to oppose all of these poorly constructed Labor stunts. The amendment looks to implement something useful—imagine that—which is for the governor to front the House of Representatives Standing Committee on Economics quarterly rather than biannually. I vehemently enhance and state my disdain for the bill and commend the outright rejection of this bill to the House.
I rise to support the Reserve Bank Amendment (Enhanced Independence) Bill 2008 that will strengthen the independence of the Reserve Bank. It shifts responsibility for the appointment of the bank’s governor and deputy governor to the Governor-General in council and ensures that termination of these appointments will require parliamentary approval. This places the Governor and the Deputy Governor of the Reserve Bank on the same footing as the Commissioner of Taxation and the Australian Statistician, which is a good thing, consistent with the approach adopted by both sides of politics that the bank should be independent of government. As the law currently stands, the Treasurer has the power to appoint and terminate the appointments of the Governor and the Deputy Governor of the Reserve Bank. This arrangement has the potential to undermine the independence of the Reserve Bank’s operations, particularly its conduct of monetary policy. This bill removes the potential for such interference.
Reserve Bank independence is supported by both sides of the House and by the weight of informed economic opinion here and around the world. Some may question why the government has given this responsibility to a group of unelected officials. We have done this because their independent judgement is critical. The former Reserve Bank governor, Ian Macfarlane, made this point in his Boyer lectures in 2006, drawing a parallel between the Reserve Bank and judicial independence. The parliament makes laws and leaves it to an independent judiciary to administer the legal system, unaffected by political interest. The same approach is needed in the administration of monetary policy. Macfarlane explained why central bank independence is so important:
The system should be reasonably symmetrical.
Over time, interest rates should rise about as often as they fall. The problem is that the public reaction to changes in interest rates is far from symmetrical.
The Reserve Bank’s job must be to take a long-term view of economic conditions, unaffected by the daily temperature of the political environment. The Reserve Bank proved its capacity to do this by tightening monetary policy during last year’s election campaign. It was an action that could have only been undertaken by an independent central bank. No-one on this side of the House doubts the independence of the Reserve Bank, but this legislation is about embedding it.
Australia pioneered independent central banking. Labor created the forerunner to the Reserve Bank, the Commonwealth Bank, which commenced operations in 1912. The Commonwealth Banks Act mandated the Commonwealth Bank governor’s formal statutory independence from government. Over the next few decades, the major parties clashed over the role of the governor and the role of the board. In 1959 the Reserve Bank Act transferred responsibility for independent central banking to the Reserve Bank, but, while the statute said it was independent of government, in practice it was kept on a pretty short leash. Implementing monetary policy involved controls on private bank lending and setting interest rates on government securities, which required the approval of the Treasurer.
The catalyst for real independence was the floating of the Australian dollar in December 1983. This allowed the bank to conduct monetary policy in the way that we now consider orthodox—using open market operations to control the short-term cash rate. It was a courageous reform and, again, it was a Labor reform. Former Reserve Bank governor Bob Johnston said it was the decision of the decade. The previous, coalition government also played an important role in the progression of RBA independence with the 1996 Statement on the Conduct of Monetary Policy marking out the formal two to three per cent inflation target. This bill is the next logical step in cementing the independence of the Reserve Bank.
The Reserve Bank Act charges the bank with a tripartite responsibility for the conduct of monetary policy in a way that will best contribute to price stability, the maintenance of full employment and the general economic prosperity of the nation. The last of these, economic prosperity, is the underlying objective of monetary policy. The second, full employment, was added by the Chifley government in the Commonwealth Banks Act of 1945. But it is the first, price stability, that we generally associate with the role of the bank. That is because it leads to the other two: it leads to full employment and economic prosperity.
The December 2007 Statement on the Conduct of Monetary Policy makes this point, saying:
Price stability is a crucial precondition for sustained growth in economic activity and employment.
Macfarlane makes this point again in his Boyer lectures:
… the best contribution monetary policy can make to lowering unemployment, is to achieve a sustainable economic expansion and this can only be achieved if it is a low inflation expansion.
That is why the current macro environment is so worrying. Inflation is the great menace. We know it pushes up interest rates, it takes food off the table, it wrecks economies and it destroys families.
As it is charged, the Reserve Bank has been adjusting the cash rate to fight inflation, but until now it has been fighting with one hand behind its back because, while it increased interest rates, the former government kept spending. One doused demand; the other fuelled it—two oarsmen, if you like, rowing in different directions. This is the crux of the problem. It is why, despite 12 successive interest rate rises, inflation has now reached a 16-year high and is now the second highest in the developed world. Fiscal policy has to work with monetary policy. Other members who have participated in this debate made that very point. It appears common sense, but it has not been happening. The shadow Treasurer’s former company, Goldman Sachs, made this point only yesterday. The Goldman Sachs analysis of the budget said:
After 2 years of notable conflict, finally we have fiscal policy that is pushing in the same direction as monetary policy.
This means cutting spending, encouraging people to save instead of spend and increasing the size and the skills of the Australian workforce.
That is why the budget is so important. Labor is taking the budget to the gym, while the former government took it out to KFC. It is our job to make the Reserve Bank’s job easier, not harder—to reduce the pressure on the bank to raise interest rates, not hold a gun to its head. That is why the budget cuts spending and invests in areas that will help us tackle inflation. The $55 billion Working Families Support Package that funds our election commitments helps meet the increasing cost of living and helps increase workforce participation, along with 630,000 new training places that will help tackle the skills shortage and $20 billion in the Building Australia Fund that will help tackle infrastructure bottlenecks. The RBA told the former government to do all of these things on no fewer than 20 different occasions.
As the member for Corio told this House, the opposition had been saying at least until recently there is no need for such spending cuts. What they have really been saying is that fiscal policy has no role to play in tackling inflation and bringing inflation back within the target band—leave it to monetary policy; leave it to interest rates. The problem with that is who gets hurt as a consequence. Monetary policy is a pretty blunt instrument. The 30 per cent of Australian households that have a mortgage bear the brunt of interest rate rises. Many of these households contain young families who are usually first home buyers trying to get into the market. They are the ones who are shouldering the responsibility for fighting inflation for the rest of us. It is unfair and, without the support of fiscal policy, it is ineffective. Families with big mortgages are already stretched. They do not have buckets of money sitting around to mop up and sop up interest rate rises. Every interest rate rise puts them under more pressure and tips more over the edge.
Last month the Deputy Governor of the Reserve Bank appeared before the Senate Select Committee on Housing Affordability in Australia. He estimated that there are around 15,000 families that are 90 days or more in arrears on their mortgage. Another 30,000 are more than 30 days in arrears. That is 45,000 Australian families that are behind in their repayments and sinking in debt. As I have told the House before, there are more of these families in my electorate than there are anywhere else in Australia. Last year 300 families in my electorate lost their homes. In Bankstown, three families lose their homes every single day.
The story is not much better at the Fairfield Office of the Sheriff. I visited the Fairfield Sheriff’s office a couple of weeks ago and they told me that eviction rates have more than doubled in the last few years, up from 113 evictions in 2005 to 259 last year. The local sheriffs have a tough job. They have told me some terrible stories. There is the story of the 70-year-old grandparents who lost their home when they went guarantor for their grandchildren. There are the wives who open the door nursing a baby not aware the family is even behind in the repayments. There are tenants thrown out on the street who have no idea what is going on, and there are the suicides that happen as they walk up the driveway. The flow-on effect is a jump in rental prices and requests for emergency assistance. Priority housing requests at the Department of Housing in Bankstown have jumped by 30 per cent in the last six months, and we probably have not seen the worst of it yet. There is a lag period after each interest rate rise of about nine to 12 months before families go under. So we can expect it to get worse before it gets better. That is why I am trying to help local families that are being consumed by mortgage stress in my electorate.
Most new homebuyers are already caught in the vortex of housing stress. Research at Canberra university has shown that 61 per cent of new homebuyers are already in mortgage stress. They get into trouble from the very start. Fujitsu has done its own research and it showed that once someone is in severe mortgage stress there is a 20 per cent chance they will be forced to sell and there is only a 50 per cent chance of getting out of mortgage stress altogether. This is the reason why more Australians are giving up on the Australian dream than ever before. It is why homeownership is dropping along with the proportion of first home buyers. It is why the local sheriffs tell me most of the repossessions in my electorate are first home buyers.
The evidence from the Deputy Governor of the Reserve Bank before the Senate inquiry into housing affordability explains why my electorate is the mortgage stress capital of Australia. The surge in prices during the housing boom was comparatively higher in Western Sydney than in the rest of Sydney. More households bought towards the peak of the market than anywhere else and incomes grew more slowly in Western Sydney than in other parts of Sydney. A disproportionately large share of mortgage loans in my electorate were sourced from non bank lenders, and these loans are responsible for a disproportionate share of defaults. It is a perfect storm. The arrears rate from non bank lenders in Western Sydney is three times that of the major banks. The Consumer Credit Legal Centre tells me that non bank lenders make up about 12 per cent of the market but they are responsible for 48 per cent of the calls they receive from people seeking help.
My electorate of Blaxland is the canary in the coalmine. But we are not alone. Other parts of Australia are also under increasing pressure. More than a million Australians are suffering housing stress. That is why fiscal policy has to work with monetary policy. That is why fiscal policy needs to work hand in hand with monetary policy. It is why the former government was removed, and it is why we need to act. That means pulling mortgage lending under Commonwealth control, and I am glad to see that COAG has agreed to give the Commonwealth government these powers. One of the first things we need to do is regulate the behaviour of mortgage brokers who are disproportionately represented in the mortgage stress maelstrom. ASIC, for example, could be given responsibility for a national system of licensing mortgage brokers and non bank lenders. Credit card lending also needs to be reviewed. I hear story after story from financial counsellors in my electorate of circumstances where people have half a dozen or more credit cards and have debts of more than $100,000. Many of them are pensioners or people that are unemployed. We need to make sure that banks operate in the interests of their customers, not against them.
This is only part of the answer. I have spoken to a lot of financial counsellors over the last few weeks—people like the Smith Family, the Consumer Credit Legal Centre and a local NGO called Creating Links. They all tell me the same thing: people wait until it is too late to seek help—when a bank is about to foreclose or when the sheriff is at the door. It is just too late to seek help then. Some are too proud to seek financial counselling. Others are in denial—they just pretend it is not happening. The sheriffs tell me they often turn up to a house and the house is still furnished—nothing has been removed.
One of the good ideas that came out of the local 2020 summits was a proposal for a national financial literacy program in our schools to ensure that every young adult is financially literate by 2020. One of the measures in the budget announced on Tuesday night that I am particularly glad to see is the doubling of funding for financial counselling services to $20 million over four years. All of that will go a long way to helping the people of my electorate. That is why I have developed a debt relief information kit for my electorate: to give local residents the information they need before it is too late to ensure that they do not lose their house. In the next few months I will be holding housing stress information nights in my electorate with organisations like the Smith Family, the Consumer Credit Legal Centre, and Legal Aid, to make sure that people have the information they need before it is too late. The aim of all of this is relatively modest—to save a few homes and a few families.
In my first speech in this place I told the House that I want to make sure the great Australian dream still means something to future generations—where a mortgage is an investment, not a trap. It is not an easy task; it is very hard. It will not be fixed quickly. It requires an enduring commitment. But I am proud to be part of a government that has made expanding the number of homes and expanding the number of homeowners a real priority, with a real plan to fix it up. Last month the Prime Minister told the Housing Industry Association:
Home ownership is not just about ensuring that people have a place to live. Homes are also financial assets ... A base to raise a family. It provides a sense of security.
That is why homeownership is so important, and that is why this bill and this budget are so important. The Reserve Bank needs to be independent of government, but it cannot act on its own. It needs our help, with both of us rowing in the same direction—and that is what this budget does. I hope that the measures in it and the efforts that we make here and on the ground will help save the homes and families in my electorate. I commend the bill to the House.
Debate (on motion by Ms Plibersek) adjourned.