Australia politics live: ‘we have forgotten’ how corrosive inflation can be on wages and savings, Lowe says in defence of rate rises

Key events

Filters BETA

Key events (11)Philip Lowe (42)RBA (26)Senate (19)Lowe Greens (16)Reserve Bank Board (15)

The Liberal senator tries again

Jane Hume:

First of all, you mentioned before – which I thought was very generous of you – that you don’t comment on government decisions as part of its fiscal policy and what the government should do. First of all, may I ask is there anything specifically around that structural desit that you would like to see the government doing?

Phil Lowe:

Nothing specifically at the moment. But we’ve talked before in these hearings about the importance of having a strong budget position in the medium term. Because at some point in the future, we’ll have another downturn and we want the government to be able to respond. And you can only do that if the budget has a strong structural position.

And my observation and the observation of others is that there are a lot of demands on the public purse coming from health, ageing, defence, disability, education.

Society wants the public sector to provide these things. If governments want to do it, they need to find a way of paying for it and that way is not debt. So the best outcome, as we’ve talked in previous hearings about, is to make the pie bigger through addressing the supply side.

So that’s what I would, in broad terms, like to see over time – efforts to make the pie bigger so demands on the public purse can be more effectively met. That’s not affecting right now but I’d like that in the medium term.

Hume: I get a sense that your views are aligned those of the IMF that the large off-balance-sheet funds can potentially be inflationary, can potentially cause debt to rise, and that that would make your job that bit harder.

Lowe:

They can add to aggregate demand and we take that into account in our forecasts. They can increase the supply side of the economy over time. I think that’s part of the government’s intention that these funds are used to address supply side issues. In the medium term, that can, if those policies are wisely conducted make the pie bigger and that helps us all.

Jane Hume is trying to get the RBA governor to say that the government’s fiscal policy is making the RBA’s job harder.

Phil Lowe is not biting (this is not his first rodeo)

Hume: So as a rule of thumb, do you believe that fiscal policy and monetary policy should be aligned?

Lowe:

In general, yes. I mean – but, as I said, fiscal policy doesn’t need to worry just about management of cycles, there are structural issues that we need to pay attention to. I think in previous hearings in this building, I’ve talked about the importance of maintaining medium-term structural budget integrity.

There are huge demands on the public purse, as you know, and we need to find a way to meet those demands if we want to and the answer is not borrowing. So that’s the kind of first-order issue for fiscal policy and over and above and beyond that, it’s helpful if monetary policy and fiscal policy aren’t working in opposite directions, and they’re not at the moment.

Dr Phil Lowe does expand a little further at Jane Hume’s prodding:

I can make perhaps one general observation, is that at the moment, aggregate demand growth has been too strong and interest rates are part of the way that we bring that back down again.

Interest rates are a nimble policy tool.

They’re a blunt policy tool but they’re nimble.

The Reserve Bank Board meets every month and we can take decisions every month based on the flow of information.

The received wisdom over recent time is that fiscal policy, most of the time, is not as effective at managing the cycle.

Because if you’re going have fiscal measures introduced it, it has to go to the House of Representatives and the Senate, and that takes time.

So I broadly ascribe to this view that fiscal policy [most] of the time should be dealing with the structural issues and the structural budget position, and except for in extraordinary times, it’s not the best tool to managing aggregate demands. Interest rates, for all its faults and problems, is the more nimble tool.

Hume: Can I clarify, when you say that fiscal policy is neutral in your opinion, does that mean that it’s not assisting to bring inflation down?

Lowe:

I wouldn’t characterise it that way. Really again it depends on the counter-factual. The government has a lot of extra revenue because of high commodity prices. If it decided to spend that now, that would have been problematic.

We welcome the fact that the government has decided save most of the extra revenue there.

There are other elements of fiscal policy that can help as well. The government’s energy package – our estimate is that the price caps there will reduce inflation about in 2024 by 0.5%.

That’s meaningful. So that’s helpful. So the government can take measures in specific parts of the economy that have an effect on prices. T

he other thing it can do is to free up the supply side of the economy. If there’s greater competition, more investment, more freedom on the supply side of the economy, then the price pressures for any given area offing a demand is going to be less.

Specific measures in particular flexibility on the supply side and aggregate demand are the three tools that government has to affect inflation outcomes and it’s really up to the government and the Parliament to decide what combination of those tools they use.

Philip Lowe says current fiscal policy is ‘neutral’

Jane Hume then moves on to government policy (monetary).

Q: In the Reserve Bank’s opinion, is the current fiscal policy expansionary, restrictive or neutral?

Phil Lowe:

Our assessment is that it’s broadly neutral. If you take the federal and state governments together – which I think is the best place to think about it – the budget deficit at share of GDP is around 3% and it’s likely to stay there for the next few years.

The best way to think about the whether fiscal policy is contractionary or expansionary is to look at the change in thing a budget deficit and over the forecast period there’s little change in the budget deficit as share of GDP. I would describe it as neutral.

Hume:

Shouldn’t it be contractionary if inflation is at the level that it is today?

Lowe:

I’m not going to comment on what the government should or shouldn’t do. The treasurer doesn’t comment on what I should or shouldn’t do and so I’m not going to comment on the direction of fiscal policy.

Updated at 19.33 EST

‘Inflation is way too high’, RBA governor says

Liberal senator Jane Hume opens the questions:

Can I first ask whether you believe current monetary policy settings are expansionary, contractionary, or neutral?

Dr Phil Lowe:

As things currently stand, it’s restrictive.

Hume: Is that the same as contractionary?

Lowe:

Yes. You see that in the fact that housing prices are falling, the rate of home-building has slowed down and people are having to pay a lot more on their mortgages. Those things are all contracting or restricting growth in the economy.

Hume:

When you make your decision, when the board makes its decision on interest rates, whether to raise them, whether to lower them, whether to keep them the same, what are the things that it takes into consideration?

Lowe:

The decision making is really around – the centre point is the inflation target and inflation outcomes. Inflation at the moment, 7.8%, is way too high. It needs to come down. That’s our primary consideration.

When we take our decisions each month, we’re looking at the data on inflation, the data on the labour market, how household spending is evolving and how the global economy is evolving.

All those things are important and the Reserve Bank Board meets every single month and we look at each of those things each month and make an evaluation on the outlook for inflation.

As I’ve said, it’s way too high and it needs to come down.

Updated at 19.30 EST

RBA governor Philip Lowe takes questions from Senate estimates

After what sounded like the economics committee hold music had borrowed from Dracula’s Sunday sesh playlist, the RBA governor has sat down and it about to start answering the committee’s questions.

Dr Philip Lowe does not have an opening statement – he is just here to answer questions.

There are no government ministers in here – that’s because the RBA is a statutory body, so there is no government involvement here.

Let’s get into it.

Updated at 19.28 EST

Centrelink staff reductions under Coalition increased call wait times: Labor

Returning to the increase Centrelink call waiting times, Labor is emphasising the impact of large cuts to Services Australia staff numbers under the Coalition.

Don Farrell, representing the government services minister Bill Shorten, told estimates the Coalition had reduced the average staffing level by 3,515 between 2016-17 and 2019-20 – equivalent to 13% of the workforce. The former government had a heavy focus on the use of labour hire staff, which it claimed had brought down call waiting times.

Farrell also noted demand has been higher than usual in recent times, with the agency taking 2.3m disaster related calls, and a significant increase in claims for child care subsidy (49%), PBS (35%) and Commonwealth Seniors Health Card (127%).

Farrell said:

It is little surprise, when you reduce the workforce as the former government chose to do, and requirements increase at the same time, extreme pressure on telephony will occur.

Updated at 19.22 EST

Defence on the review and removal of Chinese equipment across its properties

Celia Perkins, a Department of Defence deputy security, has told Senate estimates about the removal of equipment – such as CCTV devices – manufactured by Chinese companies Hikvision and Dahua across defence properties. Defence first looked at the issue in 2018, when it responded to questions from the ABC. Perkins said:

Back in 2018 we were made aware of some issues the cameras and equipment you referred to and some advice was issued across government on proceeding with caution when considering use of those of those cameras and equipment…

As we understand at the time there was advice provided through the intelligence community around devices with certain capabilities manufactured from certain companies, that in use across government we should – we would have to go back to the specific 2018 advice but we should proceed with caution.

Perkins said that led defence to review its systems and remove systems where a security risk may be identified. She said that in 2018 Defence “removed a number of systems”. Perkins said she did not have a precise number.

Perkins went on to reveal the following about a flurry of activity in the past few months:

Following some updating advice and guidance in the US and the UK and media reporting on that late last year, we undertook a refresh of our review of our estate through November and December and we identified 41 systems on 17 sites. About half of those had been decommissioned in the work we commenced in 2018 – they were no longer operational – and we’ve been working through December and January to make sure that we have decommissioned and removed those remaining systems.

Perkins said those had since been removed.

Updated at 19.25 EST

Treasury boss says government spending is ‘neutral’ for interest rates

Coalition MPs are using senate estimates to prod treasury officials, in particular secretary Steven Kennedy.

One line of questions, from Victoria’s Jane Hume and Queensland’s Matt Cannavan and others, is whether the federal government’s spending is making it harder for the Reserve Bank to contain inflation. In other words, giving the RBA more work to do by lifting interest rates.

Kennedy sticks to his line that “fiscal policy is neutral across the forward estimates”, in other words over the next four years. In other words, the budget is neither adding demand to the economy nor taking it away, compared with previous budgets.

Finance minister Katy Gallagher chips in to say that the government had banked 99% of the extra revenue from higher-than-forecast commodity prices. Last Sunday treasurer Jim Chalmers said the government would bank “most” of the trailing revenue spike in the May budget.

“Most”, of course, will be worth watching because that ratio might be well less than 99%, and depending on what happens to the sum of those extra commodity royalties, there may be some extra demand coming from the economy. We’ll know by 9 May when the budget lands.

We’ll have RBA governor Philip Lowe up shortly. In the meantime, here’s the outlook for the cash rate according to investors. They’re betting on three more rate rise to come, assuming each is 25 basis points in size, by about the middle of 2023.

Chris Bowen says Labor will stick to its election mandate

Good morning everyone. If you were up early you will have seen our news report that the Greens want Labor to stop new coal and gas projects as part of the negotiations around the safeguard mechanism. The safeguard mechanism is the regulation the Albanese government will use to drive down pollution from heavy emitters. If you missed the story, catch up here.

The climate change minister Chris Bowen has responded to that positioning this morning. He says the government will engage in “good faith” negotiations. He pointed to a constructive dialogue with the Greens, unlike the Coalition in this instance, because Peter Dutton has declared opposition to Labor’s legislation.

You can sense the “but” coming though. Here it is.

Chris Bowen:

But I make this point equally clear. What we do will be consistent with our election mandate. We went to the people with a clear policy, we will implement that policy. Nothing more, nothing less.”

A journalist asked whether Bowen feared this would be 2009 all over again (a reference to the Greens voting with the Liberals back then to sink a carbon trading scheme).

Chris Bowen:

Look, that’s a matter for the parliament. Ultimately, I’ll be putting a package before the parliament entirely in keeping with this government’s values, the Labor Party values. And in keeping with our election mandate, just as we did with the climate bill, just as we’ve done with everything else we’ve got through.”